Preparation Harbour
Time to take stock for the financial journey ahead
Our crew is in shambles, the ship’s barely holding together, and we’re clueless about the state of our provisions. The planks are rotting, the hull’s springing leaks, and our reserves are running dangerously low. On top of it all, we owe the crown more than we’d care to admit.
Before we even think about setting sail, we’ve got to take stock of where we stand and chart a course for where we want to go.
The Destination
Before we take stock of where we are, we need to think about what will be useful for our journey. By doing so we can look at our current situation with an eye to leveraging what we have now.
The destination is a very personal one and it will be different for everyone. The ultimate destination is financial freedom. This website will get you heading in that direction. When we remove the anxiety that comes from money problems, we open up possibilities and choices that were previously unavailable.
To be clear, money doesn’t solve all problems. It is a means to an end. It is a tool to be used and if used correctly can leverage up our life in ways like no other commodity.
The goal for our purposes is to use the skills and knowledge we already have, add some new information, habits, perspectives and tools that will put us on the right heading. It won’t be easy, there will be setbacks and dangerous waters to navigate. You and your level of commitment and determination are what will ultimately decide whether you fail or succeed. The goal of your treasure compass is to help navigate safely through. Let’s look at where we are and what we can work with.
Taking Stock of our situation
It would be impossible when appealing to a wide section of the population to cater to everyone personally. If you require personalized advice then I would suggest a licensed personal financial advisor who will be able to create a plan suited to your specific needs. This site does not provide personal financial advice and it would be irresponsible to do so. Having said that, there is no reason we can’t still provide an overarching framework that you can modify to suit your own situation and needs.
It can be surprising how similar the problems of a low-income household can be to a high-income household when it comes to managing money. Equally true is how dissimilar household’s relationship to money can be. For example, a single person vs a young family vs and elderly person or couple will very different. The risk tolerance is different but there can still be common strategies that will be used by all that are timeless and universal.
What we will do here is be general enough to cater to a large group yet specific enough that you will be able to tease out what best works for you.
It all starts with taking stock. By that I mean looking at where we are right now as we prepare to take off in our creaking old hulk of a ship.
We need to look at our assets and our liabilities. It doesn’t just mean what we own and what we owe, it is far more interesting and nuanced. For arguments sake let’s assume we have two identical houses; one we live in and one we rent out – lucky us! Even though they’re exactly the same, one of those houses is an asset and one is a liability. What, how can that be? Well, one of them puts money IN your pocket and one takes it OUT of your pocket. Ask anyone with a mortgage how much money their family home puts into their pocket. ZERO. It may increase in value over time (not guaranteed by the way) but even then, you’ve still got to live somewhere. And if you calculate your mortgage interest repayments into the mix it’s even more pronounced. Even if it is mortgage free there are costs such as taxes, repairs and maintenance.
There are four areas I’d like to take stock of. Now, none of this is new to you, they are assets, liabilities, income and expenses. For the moment I’ll group them together, assets with income and liabilities with expenses. There may be a few things that I might include that don’t normally sit in a balance sheet or a cashflow statement in a strictly financial sense but we’re on our own voyage and out at sea we can make our own rules!
Assets and Income
Financially speaking the generally accepted definition is “Something valuable that an entity owns, benefits from, or has use of, in generating income or other returns.” We’ll expand that here to include less tangible things that also have the potential to do the same.
Income refers to the money or value received by an individual, business, or organization, usually in exchange for providing goods or services, investment returns, or as a result of other financial activities.
For individuals, income often includes wages, salaries, tips, and earnings from investments or property. For businesses, it typically refers to revenue generated from their operations. We’re going to bend the rules a little here, but we’re the accountants on this ship so we make our own rules. You may have some, or all of the things listed. It doesn’t matter at this stage because as you know, we’re just “taking stock” so don’t get disheartened…
Health – Do your best to look after your health. It’s at the top of the list because without it, many of the other things on this list become way more difficult. Sometimes you have no choice in the matter and get dealt a bad hand but there’s ALWAYS something you can do to help yourself.
Can do attitude – Without that, all is lost. But you’re here which means you’ve made the first vital steps towards your better future. We’ll discuss the psychology of it all in later posts.
Patience – Unless we’re very lucky the rewards will take time and effort. The ability to wait and let things grow is an asset. As is riding out the lows without panicking and throwing everything away prematurely.
Savings/cash – can be used to generate more income or provide breathing space with which to work on things other than mere survival.
Friends and family – can act as a solid support that will help you in the long run. Of course, there are plenty of instances where it can be the opposite. It is a double-edged sword. If you have strong support then leverage that help. If you have the opposite, use it as incentive to prove the naysayers wrong. Ultimately however, you only have to battle yourself.
A workspace – get your environment in order so as to be your most focused. Being organized will help with your motivation. Record keeping and organization will go a long way towards success. My philosophy is to run your household as if it is a business.
Goal setting and planning – these will pay off in both financial and non-financial ways. We’ve all heard the saying “Failing to plan is planning to fail”.
A job – A source of income and potentially useful life skills. Whether you’re using your back or your brain you are essentially selling something. Everyone is a salesman they just don’t realize it.
A business – Owning your own business is most certainly an asset as long as it is staying above water and is not only covering costs but providing you an income.
Gold – Gold is money. Physical precious metals or derivatives thereof such as ETF’s etc are good stores of wealth. They do not provide an income however.
Cryptocurrency – The financial landscape is changing. What used to be physical is transforming into digital new counterparts. Gold has its up-and-coming rival, bitcoin and countries are desperate to implement their dystopian central bank digital currencies (CBDC’s) to replace cash. International remittances have new players in the form of cryptocurrencies and there are new digital contracts and decentralized finance options on the scene. It doesn’t seem to be slowing down and despite the huge risks it can be thought of as an asset that can appreciate/depreciate or even provide a return. It’s a topic on its own so we won’t dive too much further here…yet.
Shares- You can buy shares in just about anything. REITS, Index funds, dividend stocks etc. Don’t worry if all this sounds foreign to you. We will cover this in more detail later on when we visit one of the investment islands.
Bonds – Investing in the government itself. They provide a rate of return while being relatively low risk.
Property – As mentioned earlier anything that puts more money in your pocket than it takes out is an asset. So, an investment property could fit this bill as long as there are tenants living there and it can include residential or commercial property.
Vehicles – This can be a strange one. Generally, vehicles take money out of your pocket so they most certainly can be considered a liability. However, if it’s a vehicle you need to get to your job it becomes a grey area. There are also vehicles such as classic cars that are appreciating in value, trucks or earthmoving equipment that generate income. We’ll include vehicles in assets AND liabilities because anyone who owns a car certainly knows how much of a financial anchor they can be, especially if there is debt and finance involved. These things could sink our ship and we’ll look at it again later.
Of course there can be other things such as collectibles, possessions, royalties, superannuation, special skills, other investments and many more that we can include that haven’t been mentioned. If you can think of more then add them to the list in your ships log.
The goal is to assess what we have and you may have more than you think. It is important to always maintain a positive outlook. However, the fact that you need your treasure compass right now is an indication that our ship is low in the water and and we need to get it afloat and under sail as soon as we can.
Liabilities and Expenses
This is the less exciting side of the ledger. These are the things that take money out of your pocket. And for our purposes we’ll also include less tangible things just like we did previously. There’s no shortage of these. Our ultimate goal is minimization rather than eradication which would be nice.
Some examples are…
Debts, food, entertainment, petrol, car payments, mortgage, rent, house maintenance, car maintenance, business costs, taxes and fees, subscriptions/membership fees, fuel, insurances, registrations, clothing, school costs, medical costs, entertainment and eating out, holidays, gifts and donations, phone and internet, bank charges, baby costs, children costs, council rates, power and water, Credit Card Balances, student Loans, loans from Family or Friends, legal Expenses, parking or traffic Fines, buy now pay later, emergencies, overdrafts, storage fees, work related expenses, lease agreements, pet costs and on and on…
Phew!
Don’t worry, we have a plan. The most important part of that plan will come when we visit Budget Island!
However, now that we have done a basic assessment of our situation we need to get our crew on board with the plan.
For those of you that have a spouse and children then we need our unruly crewmates in the best possible mindset to ensure success. You will head on over to ‘get the crew on board’.
If you are single and it is just you to worry about then you can probably set sail for Budget Island right away.
