The goal: to know where the money “disappears” and manage the assumed obligations.
Relevant period: the duration of short-term and long-term obligations, if any, should be assessed when you plan to assume them.
What it is necessary to do:
To review your credit history.
To calculate your net financial assets, you will find out it by deducting all your obligations (loans, credit cards, etc.) from the value of your assets (real estate, movable property, investments, savings).
To review your daily expenses and ways to reduce them. Periodically to review regular payments for utilities and other services, maybe the situation in the market has changed and you can get the same service cheaper? To review if you can avoid some of the expenses in the future if you invest in a decisive change, for example, replacing windows can significantly reduce the cost of heating your apartment or house.
To anticipate how your daily expenses depend on seasonality, as well as whether there may be unexpected expenses, which could be covered if you had accumulated a financial reserve.
To self-assess the existing obligations and the interest paid on them, first, you need to return the ones for which you pay the highest interest.
To evaluate the income you receive and its possible increase or decrease, and how it will affect the satisfaction of your needs.
Considering the present obligations, to create a calendar of financial payments.
It is crucial to prepare for a “what if” scenario if events turn in an unfavourable direction. For example, if you have a mortgage with a variable interest rate, evaluate what will happen if the market situation changes and interest rates rise. It should be evaluated either what happens to obligations in the event of sudden loss of employment, total or permanent and temporary disability or death. Typically, credit institutions offer additional insurance coverage that is worth considering so that the credit you have later does not become a burden.
To prepare to assume obligations. If you plan to assume financial obligations in the future, be prepared to assume them. The Regulations on Responsible Lending of the Bank of Latvia stipulate that the ratio of the loan amount to the value of the pledged property must not exceed 85%, i. e. at least 15% you must have accumulated own funds from the value of the dwelling. No matter how many obligations you have, start saving.