Why You Need a Personal Financial Review

A personal financial review is a fantastic opportunity to see how you might be doing financially. While not overly complicated to do, it can provide you with a solid sense of whether you are heading in the right direction with your financial life, and what you should be doing to improve your financial planning.  Reviewing your finances is a vital part of making sure your budget is realistic and you have set up achievable goals for bill payments, emergency savings and even investments.  

It is human nature for most of us to focus on the small stuff when it comes to the details of our lives, and our finances should be no exception.  Unfortunately, most of the time many of us are focused on the moment (especially so during this pandemic) and when we can stop and take a few moments to pay attention to our money situation we tend to look at things from a month-to-month view, such as:

And while those three broad categories are helpful in gaining some understanding of how we are doing financially, they are not by any means close to a truly realistic overview of our monthly finances.  Rather, they give us a “live for the moment” snapshot of our lives divided up into twelve monthly slices.  Going beyond that month-to-month examination is also critical as it gives us a snapshot of financial data for an extended period, and we can then begin to see patterns in our budget.  

Every person’s financial situation is different.  And even the most basic list of income and expenses can change over the course of a year.  So, you should try to complete a personal financial review when it makes sense for you.  To help you out, here are some scenarios where it may make sense for you to review your finances:

If you get a raise, change jobs, or lose a job you will want to take some time to review your financial situation. Not only will it be important to know how much money you have and how much debt as well, but you will also want to adjust your budget to account for your drop in income and by making reductions in your expenses (where possible) to make the whole thing balance.

Alternatively, if you are going to earn more money (which is always a good thing!), you can increase your budget accordingly.  But it is also important to put at least some of that extra monthly income into some sort of savings vehicle or RRSP (Registered Retirement Savings Plan). Then you can sock more money away faster and save for retirement or build up your emergency fund. Speaking of that emergency fund, if you lose your job, you will need to see how much you have saved in your fund and carefully determine how long it will last before it is empty

If you are finding it tough to make ends meet, take a serious look at your budget, and then compare it to your spending. By comparing income, your debts, and your monthly spending habits you may be able to make concrete changes to your financial situation so you can get your spending under control.

If you are about to get married, have a child, move to a new area of the world, or embark on another major life change, then you are due for a review of your finances. For someone about to get married, for instance, you will need to produce a revised financial plan that works for both you and your new spouse.   If you are about to have a baby, you may need to adjust your monthly budget to determine how best to afford the necessary additional expenses (and seeing a reduced income, too, if either parent is planning to take maternity or family leave) for your new child.  Remember:  Diapers are expensive!

Even if you do not have a life-altering situation you should still commit to a proper and thorough review of your budget, your savings, and your spending habits on a regular basis. One thought? Agree to review your financials every six months or every year, whatever makes sense for you. And once you agree to a set time to do your review, stick to that timeframe.  

When it comes time to review your finances, it makes sense to do the most effective review possible. Here are some tips that make the personal financial review process more effective.

You cannot do an effective review without having the right information. Before you sit down to crunch those numbers, ensure you have the numbers you need.  Grab a copy of your last budget worksheet, compile a list of expenses and jot down a record of all your spending (especially those daily $2 coffees – they add up!).  Then you will be all set to make some realistic decisions about the next six month or one-year period of your life.  

A review is not just about looking at your financial situation, it is also about taking steps to improve your life, so your finances do not cause you stress. One excellent way to improve your financial situation is to set realistic, realizable goals and then work to achieve them.

Once you have analyzed your financial situation, jot down some short- and long-term goals that you would like to accomplish.  One solution might be to increase that emergency savings fund by $500 or even begin putting aside money for a new vehicle. Then plan for how you are going to achieve those goals.

For longer term goals, break goal tasks down into smaller chunks. This will help keep you motivated as you are working towards each goal, allow you to check off a task as you accomplish it and give you something concrete and achievable to work towards.

If you feel your financial situation has spun out of control and you need some advice on getting things under control again, please just click on the FREE CONSULTATION button, below, or give us a call today.  We are here to listen – and to help!