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The Importance of a Personal Financial Review

Reviewing your personal finances is important. It’s a good idea to know where you stand, figure out what may have changed, think about what has gone right and wrong in your financial life, and more.

Here are some details on why reviewing your finances is important, a few times when it makes sense to do a personal financial review, and some tips to make the process more effective.

Why A Personal Financial Review is Important

As mentioned, a financial review is a great opportunity to see how you’re doing financially. It can help you figure out what you’re doing wrong, what you’re doing right, and what you should do to achieve your goals. Reviewing your finances is a vital part of making sure your budget is effective.

Most of the time, we focus on the small stuff when it comes to finances: how much we spent this month, how much we have to pay this month, how much we have left in the bank, etc. Those factors are certainly important, but reviewing your overall financial situation is critical to get a “big picture” view.

When it Makes Sense to Do a Financial Review

Every person’s financial situation is different, so you should do a personal financial review when it makes sense for you. Here are some scenarios where you may want to review your finances.

  • When Your Income Changes
    • If you get a raise, change jobs, or lose your job, you’ll want to take some time to review your finances. Not only will it be important to know how much you have and how much you owe, but you’ll also want to change your budget to account for your change in income.
    • In situations where you’re going to earn less, you’ll need to make cuts to your budget to make things balance.
    • If you’re going to earn more, you can increase your budget somewhat, but it’s also important to put at least some of the increase in salary to good use. For instance, you can use this money to pay off your debts more quickly, save for retirement, or build your emergency fund.
    • Speaking of your emergency fund, if you lose your job, you’ll need to see how much you have saved, then determine how much you can spend without running out of money.
  • When You’re Having Trouble Managing Your Money
    • If you’re finding it tough to make ends meet, look at your budget and your spending. Compare this to the rest of your financial situation (your income, your debts, etc.) and then make changes so you can get things under control.
  • During Life Changes
    • If you are about to get married, have a child, move to a new area of the world, or embark on another big life change, it’s a very good idea to review your finances. If you’re getting married, for instance, you’ll need to come up with a new financial plan that works for both of you. If you’re having a baby, you’ll need to figure out how you’re going to afford the necessary expenses (and likely on a reduced salary if either parent is planning on taking time off work).
  • On a Set Schedule
    • Even if you don’t notice any issues and you don’t experience any big life changes, you should still commit to reviewing your budget, your savings, and your spending habits on a regular basis. Commit to doing so every six months or one year, whatever makes sense for you.

How to Make Your Financial Review More Effective

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.

  • Get Organized
    • You can’t do an effective review without having the right information. Before you start your review, make sure you have a copy of your budget, a list of your expenses, a record of your spending, and any other information you need.
  • Set Goals
    • A review isn’t just about looking at your financial situation, it’s also about taking steps to improve it. One way to improve your financial situation is to set goals and work to achieve them.
    • Once you’ve looked at your financial situation, write down some short- and long-term goals that you want to accomplish. Then plan for how you’re going to achieve them.

For longer term goals, break them down into smaller milestones. This will keep you motivated and give you something achievable to work towards.