23 September 2020

Five practical steps to Zen peace around your finances. Step One: Understand your current financial position.

It’s a great time to review our finances just now to help us look forward positively. Would you like greater control and peace around your money?

Maybe you’ve got everything under control, but maybe your children, who are starting out in life, need some pointers?

While I can’t promise that the following five steps will lead you into a guaranteed state of Zen, I’m pretty certain they will move you in the right direction.

Let’s look at them carefully, one by one in a series of blogs that will give you practical advice on how to understand your financial position, examine your spending habits, prioritise your financial goals, and improve your financial position over time.

Step One: Understand your current financial position

Don’t bury your head in the sand, instead, get a grip of your finances – not only should this help reduce any stress by taking away the fear of the unknown, it is likely to result in you becoming financially better off. Step one is made up of two elements: understanding your capital position, and understanding your income and expenditure.

First, list your assets (your capital), noting what each is and the current balance, from bank accounts, ISAs, and investments to pensions. Don’t worry if you don’t have an up-to-date value, just put down the figure you have and note the date of the valuation or the basis of your estimate. You may already record this in a spreadsheet or similar.

Secondly, and this is the more challenging part, note down your monthly net household income alongside monthly and annual costs. It’s the costs bit that’s the challenge for most. Gathering that information is undeniably a chore, but don’t let that stop you – get something down on paper or into your spreadsheet and it can be refined over time.

Start by getting a few months’ bank statements and noting all the Direct Debits and Standing Orders. Include everything from your mortgage to pet costs and school fees. These costs in themselves will give you a figure which is likely to represent a large proportion of your essential or fixed monthly spending, with perhaps just food on top of that, which again you can estimate by thinking about how often you go to the supermarket and how much you spend each time. Record annual costs as well, such as house insurance, car expenses including fuel, then divide these by 12 so that you can note them in the monthly figure.

Once you have a figure for essential spending, consider your discretionary spending. This is subjective but might cover things such as dining out and annual holidays. This is where the surprises tend to lurk in terms of just how much money we fritter away. But one silver-lining of lockdown is the positive effect it has had on our bank accounts when it comes to take-away coffees, Pret sandwiches and other such daily treats which have now become a distant memory.

Your discretionary spending and how you approach this is a big topic in itself. More on that in the next blog, along with Step Two: Choose where you spend your money.

Richard Wadsworth is a Director at Carbon and can be contacted at


The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest.

This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice. You are recommended to seek competent professional advice before taking any action.

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