Step 3: Identify the financial gap

In this series, discover the four critical steps you need to take to achieve financial freedom with less stress and more certainty with the financial mastermind, Willie Hooks.

Before proceeding with step three in your journey to financial freedom, make sure that you read part 1 and part 2 in the series.

Download your FREE Journey to Financial Freedom Worksheet at the bottom of this post to complete each step in the Journey to Financial Freedom with your own data.

“In addition to the financial gap, you must also understand the winning financial strategies, best financial practices, and the effective ways of thinking about money and finances to achieve financial freedom.”

– Willie Hooks

What is the financial gap?

For the individual investor, it is important to understand the concept of financial gap analysis. This is the process of evaluating your current finances and how much money you need to achieve your financial goals.

It is an important step in providing insight into whether you are on track to meeting your short-term or long-term goals. Taking the time to complete this analysis will help ensure you have a clear path toward achieving your personal financial objective.

Why do you need to perform a financial gap analysis?

Performing a financial gap analysis enables personal investors to identify the strengths and weaknesses of their current financial strategies. The gap analysis should enable you to adjust your strategies to close the gap between where you are and where you want to be in the future.

Investors can recognize which investments have been successful in meeting their financial goals and which have not. It also helps you identify potential issues that may arise if certain financial decisions or investments are made. Identifying and documenting the gap between where your finances currently stand and where they need to be to reach your goal allows for more clarity on an overall strategy and timeline.

Additionally, a financial gap analysis can provide a comprehensive overview of your total financial situation and help guide investment decisions that could make all the difference when trying to build wealth.  

Remember, your financial goals should be specific and measurable to ensure that you can effectively work towards achieving them.

Where do you start in performing a financial gap analysis?

When performing a financial gap analysis, you measure your current financial results against your desired financial goal.

For example, if you are currently earning a passive income of $1,000 per month and your desired goal is $7,000 per month, then there is a gap of $6,000. This means that you must increase your passive income by $6,000 monthly to achieve your desired financial goal.

You can use the net worth calculator in the FREE Journey to Financial Freedom Worksheet below to establish your current net worth and then compare this to the net worth you aim to achieve at retirement. The gap between your current net worth and your desired net worth illustrates the gap you have to close to achieve your financial goals in time and on target.

The only way to close this gap is to have a critical action plan that allows you to cross that divide with high certainty and minimal risk.

How do you go about performing a financial gap analysis?

Step 1:

Start by identifying your desired financial goal.

Setting financial goals and objectives will help you stay on track and reach those objectives.

Step 2:

Gather your financial data and establish where you currently stand financially.

Step 3:

Analyze the data and do a financial gap analysis to identify the gap between where you currently are financially and where you want to be.

Step 4:

Develop an action plan to close the gap. We will unpack how to do this in the fourth and final part of the four steps to financial freedom.

Breaking the illusion of building wealth

In Part 2 of this series, the Four Steps to Financial Freedom, I explained that you wouldn’t use outdated paper maps when planning a road trip when you have access to GPS technology, which is designed to ensure that you get to your desired destination more efficiently, with greater certainty, while avoiding unnecessary risk.

It’s important to realize that your current financial strategies, practices, and beliefs about money may be based on outdated and ineffective models. As such, the strategies that you currently have in place are more likely to widen your financial gap than to close it.

You don’t want to use old, outdated investing strategies when planning the most important journey of your life – your journey to financial freedom. Therefore, you must be willing to adopt new technology and think and act differently to close the gap between where you are currently and your future financial goals.

The Lifestyle Gap

Once you have analyzed and come to terms with your financial gap analysis, it’s time to look at the direct effect that this gap has on your lifestyle.

You may want to live a life where you have the resources needed to fulfill your needs and have peace of mind that you have the option to retire and maintain your standard of living.

Unfortunately, if you are following the traditional investing approach, you are unlikely to be near achieving your financial goals and are more likely living in ‘debt prison’.

To close your lifestyle gap, you need to be willing to course correct and take a new path that is more likely to yield the results that you want in a defined period of time. To achieve this, you are going to have to radically adjust your thinking and behavior when it comes to managing your finances. While the financial system may be rigged against you, there are methods, systems, and technologies that you can leverage to alter your course and achieve your financial goals faster, with less stress, and more certainty.

“Everything you’ve ever wanted is one step outside your comfort zone”

Building wealth and achieving financial stability takes time and effort but is possible with the right approach. By setting realistic goals, tracking your progress, and keeping yourself accountable and on track, you can soon reach your financial goals and be onto the lifestyle of your dreams.

Download (and save to your computer) the Journey to Financial Freedom Worksheet to track your progress on your journey to financial freedom.

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