We service our cars after a period of time or after driving a certain mileage, and take our pets to the vet not necessarily because they are sick, but just for health checks to know what to do more or less. Do we do the same about our finances? How healthy do we feel when it comes to managing your money? Would you say your financial life is thriving or is it in the ICU?
The best way to get an answer to these questions is by conducting a self-audit of your finances so you can get a proper diagnosis.
Basically, your objective when carrying out a financial audit is to review how much money was made, how the money was spent, what proportion of the money was saved, what was spent that was not there (this is the debt that was acquired), and what’s the progress in relation to the set financial goals, among other things.
As challenging or overwhelming as it may seem at first, it actually isn’t! It is a very beneficial thing to do because it ensures you are not living beyond your means; accumulating more and more debt while you are at it, and keeping you on track to set yourself up for financial success.
The first thing that may come to mind when thinking about personal financial status is how much is being made. In other words, your income. It is important to look at your total income from all your different sources. Be it from salaries or wages, or the returns from your investments like the forex trading, or stocks. Do not forget the little payments include tax refunds and any savings you may have.
The next thing to take a look at is your expenditure. This will include your:
Having calculated the totals, proceed to subtract the expenses from the total income to establish your overall financial situation. Assess how it looks. Are you living beyond your means or is it the other way around?
After establishing your financial status, you can start mapping where you would aspire to be and how to get to that point. If having debt is a problem for you, dealing with them should be the number one priority.
Conducting a financial audit is neither easy nor necessarily a fun task. You have to stay focused for you to do it. It is best to not decide to have your financial audit done on a whim or even when there are a lot of things that may distract you. Set aside some time when you do not have so much to do. The more focus you put on it, without distraction, the quicker you will finish and have a successful one while at it.
We now know that an audit is a thorough examination of every financial-related aspect of your life. Leave out nothing. It is important to gather together all financial documents, any bill, receipt, statement, and any other document you can find that relates to your finances. These documents will give you a picture of what your spending habits are and where your income goes. It then goes without saying that you need to preserve all your physical receipts and record any other expenditure that is either done digitally or in cash without receipts (e.g. duka purchases).
The next step is to identify any spending habits. Review the receipts, the bills, and look for any splurges, unexpected, or extra-large expenses. See if you can highlight ongoing patterns or habits in the various areas of spending. You may find that you spend a lot of money on takeout and food. Maybe you take on so much debt, or maybe you spend a lot more than you should on subscription services. It would be great to take time to review when and how you spend. That way, you will be able to decide which habit is detrimental to your financial status. Again, personal record keeping will be important because reviewing your monthly expenditure off your memory may not be as reliable.
Make a list of all your expenses and, like your documents, group them into categories or themes, like transportation costs, entertainment, food, etc. After that, review what areas cost the most and see if you can save as much as you can. It’s possible to find that you are spending as much as you are because you have not re-evaluated the cost or have not given it a thought before buying. Realizing this, you will be able to identify another area where those funds can be better used.
Come up with a better strategy to refine your finances. Start planning for meals and eliminating extra spending. Cut out unwanted or overly expensive services, make a plan to reduce debt, and put the funds into your savings account. By strategizing ways to make your habits better and reprioritizing expenses, you will be able to keep your finances on track to completing your objectives and acquiring financial freedom.
Remember, conducting a personal financial audit is a simple and great way to strengthen your weak points. There is, absolutely, no need to panic or beat yourself up with where you are at financial-wise. Finding the time to review your finances and thinking about where you would like to end up is, massively, a beneficial step to celebrate.