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Introduction
Before you can improve your financial life, you must first understand your current financial situation. Most people struggle with money not because they lack income, but because they don’t clearly know where their money goes, how much they owe, or what their true financial position is.
Knowing where you stand financially is the first and most important step toward financial stability and long-term wealth.
In this guide, we break down exactly how to assess your finances and build a clear picture of your money.
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What Does “Knowing Your Financial Position” Mean?
It means having a complete and accurate understanding of:
How much money you earn
How much you spend
How much you owe (debts)
How much you save
Your financial habits
What risks you face
What goals you want to achieve
Once you know these, you can control your finances instead of letting money control you.
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1. Calculate Your Total Monthly Income
Start by listing every source of income you have:
Full-time or part-time job
Freelancing or online work
Small businesses
Side hustles
Commissions or bonuses
Money from services (transport, repairs, etc.)
Add all of them to get your total monthly income.
This number is the foundation for every decision you make.
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2. Track All Your Monthly Expenses
You cannot improve what you do not measure.
List all your spending for the last 30 days.
Split your expenses into two groups:
A. Essential (Needs)
Food
Rent or housing
Transport
Utilities (electricity, water, internet)
School fees
Medical needs
B. Non-essential (Wants)
Eating out
Entertainment
Shopping
Subscriptions
Luxury items
When you separate these categories, you immediately see where your money leaks.
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3. List All Your Debts and Responsibilities
Many people avoid checking their debts because it feels uncomfortable.
But ignoring debt only makes it worse.
Write down:
Loans
Credit owed to people
Business debts
Unpaid bills
Installments
Then calculate your total debt.
This helps you plan repayments realistically.
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4. Review Your Savings and Assets
Knowing what you own is as important as knowing what you owe.
Your assets may include:
Savings account
Mobile money balance
Cash reserves
Land or property
Investments
Equipment or tools used for income
Digital assets
This gives you a clear picture of your net worth.
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5. Compare Your Income vs. Expenses
This step shows your real financial health:
✔ If income > expenses → you are financially positive
You have room to save, invest, and grow.
✔ If expenses > income → you are financially stressed
You may need to reduce spending or increase income.
✔ If they are equal → no growth, no savings
This is called “living paycheck to paycheck.”
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6. Identify Financial Weaknesses and Risks
These may include:
No emergency fund
Too many small expenses
Uncontrolled debt
Irregular income
No savings plan
Overspending on non-essential items
Knowing your weaknesses helps you fix them fast.
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7. Set Clear Financial Goals
Once you know your starting point, choose where you want to go:
Build an emergency fund
Pay off debt
Save for a business
Invest for the future
Increase income
Improve credit reputation
Clear goals guide every financial decision you make.
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Why This Step Is So Important
Knowing where you stand financially:
Helps you stay disciplined
Prevents financial surprises
Makes budgeting easier
Improves decision-making
Builds confidence and control
Shows you exactly what needs improvement
This is the foundation of smart personal finance.
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