Finances are an integral part of your life.

Whether you agree or not, finances affect a lot of things in your life.

I had ignored managing my money and growing my finances for a long time, and once I did learn how to, it changed my life in ways that I did not imagine.

For people who are not interested in money management, it can be overwhelming where to start.

They may have lots of credit cards, payments, renting or buying a home, little or lot of cash and a few investments. Then there are tax situations, estate questions, investment research and all that.

Instead of being overwhelmed, wouldn’t it be easier for you if someone tells you that ONE step to start taking control of your finances? What is the first baby step?

I call it the Financial Reboot.

It’s a reboot or starting up of your financial journey. Once you have this solid foundation, you will see that improving or assessing your financial situation at any stage of your life will become so easy and fulfilling.

The first step – 8 numbers

Once you find these 8 numbers, you are way ahead of many people.

These 8 numbers will always be the gateway to your personal finance.

The second step – how you feel

Although we started directly with numbers, we should not forget that personal finance is a lot about mindset, behavior and emotions.

Money coaches normally talk about your money story, money mindset and money beliefs. I too believe in these aspects of personal finance but always found it hard to talk about this to clients, without sounding fluffy or phony.

Then I stumbled into this business strategy concept, which is a middle ground between pure mind games and the number games.

This concept is called S.W.O.T – Strengths, Weaknesses, Opportunities, Threats

When we apply this business world concept to the personal finance, it puts you into the driver’s seat – the CEO’s seat of your personal finance. You are no longer just meditating and wishing a good financial life, but actually making more awareness of your situation.

Let’s dive in.

Strengths

• What do you feel good about the eight numbers?
• Maybe your income, ability to spend less than you earn, your savings or low debt.
• Define your unique strengths from the eight numbers.
• It’s all about happiness, as you evaluate your money situation’s strengths.

Weaknesses

• What part of the 8 numbers keeps you up at night?
• Which part of the 8 numbers you wish would have been different?
• May be you have high debt that is panicking you or you think about it regretfully.
• It’s all about what needs change, or you want to change.

Opportunities

• What outside factors can affect the eight numbers positively for you?
• It could be interest rates going down, market down/up, tax benefits.
• You have not used high yield savings account, refinance at lower rates etc.
• Opportunities are about the outside world and need you to read or pay attention.

Threats

• What outside factors can affect the eight numbers negatively for you?
• It could be losing your job, and hence your income.
• Or it could be rise in interest rates for floating rate debt, taxes going up.
• Threats are external and helps you guard the 8 numbers against adverse situations.

Although the SWOT analysis does not address the money mindset, beliefs and stories you may have, it triggers them from the eight numbers.

Here are few scenarios where money mindset, beliefs, stories are embedded.

• You believe in spending today, and so expenses, debt will be major part of income.
• You are not good at holding money, and hence your total savings is meagre.
• You value freedom and hence your debt levels are extremely low, almost zero.
• You have a growth mindset, and focus more on income growth than debt/expense.

Now that you have the eight numbers, did a SWOT analysis and evaluated your money feelings inside, let us dive into some numerical analysis for the people who understand the language of math.

There are several ratio based analysis possible (including below blog link), but I will just draw few insights from the eight numbers.

The third step – numerical analysis

Here are some key insights we can develop from the eight numbers.

• Debt to Income ratio – tells you how much of your income is going to others’ pockets.
• Expense coverage ratio – how much savings to have to cover 6 months of expenses.
• Assets to Liabilities – How much of your investments/assets are funded by debt?
• Net worth – your equity when you take out total debt from savings and investments.
• Slack – Monthly surplus after you take out expenses, debt and housing from income.

In this third step, we can calculate some of these ratios and compare against golden rule of thumb that people had been using.

This is what a website that I built, does.

It calculates all these ratios, and tells you what to do in each cases.

Conclusion

The Financial Reboot is an essential step. It is not only for people who are just getting interested in personal finance, someone starting from scratch or trying to make perfect.

Don’t hide your finances, so you can be doing a Reboot and confidently develop a plan.