Identify Your Financial Starting Point

step 1

To define your Financial Starting Point, you should take the time to complete a thorough listing of your family’s income and expenses by completing a Household Budget and Net Worth Statement. While that may seem like an awful lot of work when really you just want to get on with it and invest and make money, you must take the time to compile all your information in order to do it right, as they say.

Members’ Note:  InvestingForMe provides members with a comprehensive Household Budget and Net Worth Statement to help achieve Step 1 of the investment process. Both tools can be saved to a member’s My Folder section for future review and updating. This makes tracking your future success effortless and timely.

The reason for taking the time to complete these written budgets and statements is very simple. Financial goals can only result from three avenues: either a winning lottery ticket, an inheritance, or a hard-working ethic with a penny-saving philosophy with a successful investment of your savings (a process that you then repeat each year). While lucking out with a lottery or inheritance would be nice, for most Canadians the last option involving hard work is the only option we can actually plan and control. So the sooner we begin, the greater our chances for achieving our financial goals.

To begin designing your individual portfolio, you must understand your Starting Point by answering the following questions:

  • How much income do you have and where do you spend that income?
  • Do you have the ability to save?
  • What are your assets and what are your debts?

Note: Each year your goal should be to

  • spend less than your income
  • increase the value of your assets, and
  • decrease the amount of your debts

Only by formally itemizing all of your income and expense items in a household budget as a Financial Starting Point can you work toward increasing the amount of regular savings you can generate. Those savings can go toward investments, thereby increasing your assets or it can go toward paying off your debts. Both will increase your net worth. The purpose in focusing on your savings first is for you to use your income and expense summary to ensure that you are maximizing every dollar of your hard earned income and to possibly free-up additional savings for debt reduction or investment.

Note:  Some of you may be wondering what budgeting has to do with investing!  The truth is that it does. Take a quick look at the following table of common household expense items and their costs over a 20- and 40-year period. See how much you could save if you invested that same money more wisely. Also, as you move down the list of expense items, ask yourself just for fun which of these expenses did your parents pay? (They probably did not have a cell phone, buy a daily coffee at Starbucks ($166,397), use high-speed Internet ($73,461) and incur investment costs ($312,597).) If this rings true, see how they would have found it easier to save approximately $669,680 in expenses over a 40-year period!

Monthly Annual Under Mattress Invest At 5% Invest At 5%
Item Expense Expense For 40 Years For 20 Years For 40 Years

Cell phone













one pack per day @$8.00












Starbucks Coffee












2 cases per month












4 bottles per month












High-Speed Internet











Increased cost to lease vs. finance a car purchase*  











Investing costs* 












Totals: $670 $8,054 $418,194 $372,404 $1,361,738
  • *Assumes Loan and Lease is renewed every 48 months to purchase $20,000 car. See our Automobile Financing Comparison calculator.
  • *Assumes $100,000 invested in mutual funds with an average annual Management Expense Ratio of 2.40% per year.

Remember: Budgeting and specifically saving is the source of your investment capital. (If you cannot save, you will not have to worry about investing because you will have nothing to invest!) Investing as a secondary activity should support your primary activity – creating savings. As the secondary activity, your investing approach should not work against your efforts to save and, thus, cause your savings to decline in value. What is the point in working hard to save a dollar only to have your investment decisions make it worth 50 cents? As Warren Buffet is often quoted as saying, the first two basic rules of investing are these: “Rule #1: Never lose money. Rule # 2: Never forget rule # 1.”

So, once you have completed a Household Budget and Net Worth Statement of all your income and expense items, you will be able to identify areas that can be eliminated or modified to further enhance your ability to save. Your household budget can be reviewed and updated every six or twelve months to track which expenses are rising faster than appropriate. (For example, are your telephone, cable vision, and Internet expenses increasing faster than you expected? Maybe it’s time to shop around to see which service providers are offering the same services for a lower cost.) Your household budget gives you the ability to monitor where your income is going and to make sure that you are receiving the best value for the money you pay.

Remember: By completing a Net Worth Statement, you are able to clearly identify your assets, and more importantly, your debts. There are only two basic ways to increase your net worth – increase your assets or eliminate your debts! By reviewing and updating your Net Worth Statement every six or twelve months, you will be able to track the improvement or deterioration in your accumulation of assets and the reduction in your debts

Once you have completed Step 1: Identify your Financial Starting Point, you can now have a bit of fun with Step 2: Identify your Financial Finish Line –Your Goals.