I regularly perform a personal audit on myself to take note of my financial standing compared to the previous years.
It’s a little like the performance reviews we have at work.
Personally, I find it a great way to review my overall financial situation and see whether I’ve made progress in terms of savings or investments.
Here’s how you can go about performing your own Personal Financial Audit:
Step 1) Take Note Of All Outstanding Debts
Debts stand at the top of my “get-rid-of” list, because they eat into savings and it’s a nagging hindrance that prevents me from moving forward financially.
However, debt is sometimes necessary, such as your mortgage loan that helps to pay for an asset. For mortgage loans, you should review the interest rates to see if it’s a good time to refinance your loan.
For other loans, such as study or car loans, work out a plan to pay them off as soon as you can by setting aside a monthly repayment amount from your salary.
Step 2) Perform An Asset Check
For my asset check, I only include liquid cash as well as investments.
As I track my spending and savings every month, this should be easy to compile so that you have a clear view of how much you’ve saved over the past few months.
If you find that you’ve overspent and didn’t reach your goal, it’s a good time to take a good look at your budget and savings goal.
While we cannot guarantee returns on our investments, it’s a good time to review how they are doing.
If they are not performing up to par, you might want to switch them out to something else but do remember to stick to your initial investment objectives.
For instance, if you had put your money into a stock and intended to invest it for 10 years, do not judge its performance just over a one-year period.
Step 3) Set Up Next Quarter’s Budget
After you’ve performed step 2, you should have an overall idea of your spending and savings for the entire year. Here’s where you can start setting up your budget and financial goals for the next quarter.
If you have never done this before, here’s a quick guide how you can set up your budget:
- Track your spending for 2 months – this will give you a good estimate on how much you spend on different categories of things, such as utilities, transport, shopping, entertainment or groceries.
- With this information, you can start to set spending limits on each category. Remember to set aside money for servicing any outstanding debts and savings as well. Try to set aside at least 20% of your salary per month.
- If you can, set aside some money for investments as well. If you aren’t sure where to start, check out our article here for some investment ideas.
And voila! Instead of making endless financial resolutions, start your next quarter of 2016 right with a plan to set you on the road towards better financial health.