Mind The Finance Gap

Mind The (Finance) Gap

Like most people in the world, there’s a sizeable gap between where I am financially, and where I want to be. Fortunately, I’ve decided to start doing something about it. If you’re struggling to bridge your own finance gap, then I invite you to follow along with the journey, and find some inspiration or actions that will help you move forward.


The wise woman built her (financial) house on…

Before I can start building, I’ve got to have some solid foundations.

This is where a lot of folks fall over. Just think back to all the stories you’ve read about the millionaire athletes who suddenly go bankrupt, or the lottery winners who end up broke in the space of just a few years. Every time I see a story like that, I can’t help but to think,

“How the heck did you manage that!?”

The answer is simple. They tried to build their condo directly on the beach, without any foundations.

I’m no engineer, so before laying the foundations, I first need to make sure I understand the terrain.


Rocky ground or smooth sailing?

Figuring out your Net Worth is a great place to start your journey.

Total Net Worth = Total Assets – Total Debt

Figuring this out forces us to face the reality of our financial starting point. For those of us with the shadow of Student Loans and rented apartments hanging over our heads, it’s daunting.

But here we go…

Debt: Money you owe to others. Includes student loans, credit cards, mortgage, etc.

Assets: Money in the bank, investments, sellable high-ticket items such as jewelry or a house.


Take a deep breath and…jump!

At the time of writing, my personal balance sheet looks a bit like this (for simplicity, I’m going to use round figures).

Debt: €22,500
Assets: €8,500

So to find my actual net worth, let’s take my total assets and remove my total debt from that amount.

Net Worth (approx.) = -€14,000

…ouch. I don’t know what’s more depressing; the fact that I’m 14k in the negative, or that the number isn’t actually as bad as I thought it would be!


The first calculation

Despite that painful Net Worth calculation, I’m not actually starting from ‘Day 0’. A strong but basic foundation of financial knowledge has given me the push in the first place to get really serious about these numbers.

If you’re struggling to find the mental space to consider where to start your own financial journey, then I would definitely recommend doing a simple Net Worth calculation like I did above.


Three-Year Plan

While it’s nice to think that I’ll be able to retire early and sip gin & tonic by the lake whenever I want, planning for the long-term without the stepping stones in place tends to leave me in a state of ‘sometime’ rather than ‘now’.

I’ve found it super useful to create a three-year plan. It’s not granular enough to drive me crazy if I miss one Student Loan overpayment, but it keeps me on track.

The granularity of your goals (Yearly, Quarterly, Monthly, etc) will largely depend on what you’re trying to accomplish.

Age 28: Student Debt down to 10k / 1.5k in investments / 5k emergency fund

Age 29: Student Debt down to 5k / 3k in investments / 7.5k emergency fund

Age 30: Student Debt FINISHED / 5k in investments / 10k emergency fund

I’m using the rest of my Twenties to build that foundation: get out of debt and make sure I’m covered for any unforeseen circumstances. I already have ideas about goals for my Thirties, but I have to make sure I don’t get too ahead of myself.


Over To You

Have you calculated your Net Worth recently? What about creating a 3-year plan for your financial goals? They say folks are 91% more likely to complete their goals when they actually write them down… so feel free to share them with me in the comments below.

[Note: This post was originally written in October 2017 during the great ‘Slacking Off’ crash].

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