Before anyone can climb the Financial Ladder, there is one step that comes first. Step Zero. This is the moment to pause and figure out where you actually stand. You might not know yet whether you are already on the ladder, at the very bottom, or somewhere in between. That’s completely fine. Every journey starts with orientation.
Many of us begin with the same uncertainty: we don’t really know our financial position. We may have a rough idea of our salary and some of our bills, but when it comes to the bigger picture, things feel blurry. It’s like sailing a boat without knowing your current location. Even if you know which way is north, you cannot set the right course until you first figure out where you are.
The good news is: getting clarity is not as complicated as it seems. All you need are a few quiet minutes, a notebook or spreadsheet, and the willingness to look at your numbers. Think of this as switching on a light in a dark room. Suddenly, what felt confusing becomes clear.
Step 1: What is your income?
Start with the positive side: your income. Write down every reliable source of money that flows into your life. Break everything down into monthly amounts, even if the payment comes once a year. For example, a $600 annual bonus translates to $50 per month. The key here is consistency. If the money comes in regularly, it belongs on your list.
Examples could include: your salary from work, profits from a small business, bonuses, rental income, investment income, alimony, unemployment benefits, or even smaller amounts like pocket money from a family arrangement. Don’t overthink whether it “counts” – if it’s dependable, write it down.
When you’ve listed everything, add it up. That number is your true monthly income.
Step 2: What are your expenses?
Now comes the harder part: figuring out where your money goes. Start by checking your bank account or credit card statements. These tell the truth more clearly than our memory usually does. Be sure to include debt payments here – they’re part of your monthly reality.
Your expenses might cover: housing costs such as rent or mortgage payments, utilities, insurance, car-related costs, public transport, groceries, clothing, internet and phone bills, childcare, school supplies, eating out, memberships, holidays, and of course those little “extras” that don’t feel big until you add them up.
Go line by line, write the numbers down, and total them. This is your monthly spending. Don’t worry if the list feels long or even a bit uncomfortable. Awareness is the first step toward change.
Step 3: Do you have savings or debts?
Finally, take a look at what you own and what you owe. Check your bank accounts for the current balance and make a list of your debts. For this step, focus only on liquid assets—things you can access quickly, like money in the bank, shares, government bonds, or even gold and cryptocurrency if you know their actual value.
What not to include? The money a friend promised to pay back after their next poker win, your grandmother’s inheritance that might come “someday,” or that vase you bought at the flea market from a seller who swore it was 2,000 years old. Stick to what is real and available right now.
Write down your debts as well: credit cards, loans, or anything you owe. Compare the two numbers—your savings and your debts. This will show you whether you’re in the red, just breaking even, or already building a small cushion.
Your financial overview is done!
Congratulations. By writing down your income, expenses, savings, and debts, you’ve created a full overview of your current situation. You now know exactly where you stand on the Financial Ladder. From here, the path becomes clearer.
Here’s how the lower steps of the ladder might look:
- Step 1: Your income is lower than your expenses and you also have debts. This is urgent, and the first place to take action. If you are not in debt but your income is still lower than your expenses, it is only a matter of time until the money runs out. The clock is ticking, and this is the moment to turn things around.
- Step 2: You have debts, but your income is higher than your expenses. That means you have room to start paying them off.
- Step 3: No debts, and your income is higher than your expenses. Great! Now it’s time to begin saving.
- Step 4: You’ve built up some savings. Unexpected expenses like a broken fridge no longer feel like a crisis.
- Step 5: You’re ready to make your first investments. The exciting part begins here.
- Step 6: You already have investments and are looking for ways to grow them further.
- Step 7: Your savings and investments are solid, and you may even enjoy passive income.
- Step 8: Financial freedom—your money works for you, and work is optional.
No matter where you land, knowing your position is empowering. You’ve switched on the light and can finally see the room. The next steps might take time, but they’re clear. And remember: everyone starts somewhere. Today, you’ve started.
Disclaimer:
This blog is for informational purposes only and should not be your sole guide for financial decisions. Always consult with a qualified financial professional before making major financial commitments.
