During these uncertain times, many of you are upset about the state of your finances. You are possibly even being hard on yourselves for the decisions you’ve made in the past. But this is not helpful or productive. The best action is to be gentle – to forgive and congratulate yourself for making a start on improving.
A financial review may sound daunting, but it is a necessary endeavour to keep check on your current financial situation. And it’s very unlikely that it will all be bad news! Along with identifying the areas that need positive attention, it acts as an opportunity to celebrate wins and define best practice.
There are three elements to a comprehensive personal financial review:
Net worth – this identifies your worth at a particular point in time
A budget – a breakdown of how your income is allocated to your expenses
A cashflow forecast – this demonstrating how income and expenditure will behave in a coming period (usually twelve months)
These three elements will form the basis for the steps you should take to stabilise and improve your financial health.
One of the greatest benefits of carrying out a detailed review of your finances is how eye-opening it will be. You will be likely to notice contradictions between your estimated spend on a particular area and what the reality is. On the positive end, it will lead to a curbing of overspend, thus having more money to allocate to something better.
Check you’re getting the best deal
Tied in with mistake-spotting is making sure that you’re optimising what you pay for. There are many factors in securing the best deal, but, checking for a better utility deal, for example, will mean more money in your pocket. It will also provide an improved financial position in your next review.
A change of circumstances
Necessities, tastes and personal circumstances change over time, so regular reviews are a great opportunity to take stock and identify where money is being spent unnecessarily or incorrectly. On a small scale, are you still garnering benefit from that magazine subscription? And do you still need an all-London travelcard if you now work a stone’s throw from your home?
Other larger changes include your will, or does your home contents insurance need updating? Changing circumstances won’t necessarily mean savings, but a review will act as a reminder to make sure the admin is in order and up to date.
New goals and targets
Circumstances change and so do goals. If you have been working towards a major purchase, such as a car, why keep to the same forecast if this stops being the target? Regular reviews are an opportunity to check-in and define what you want and how to get it. But we should never forget…
The old adage of having three months’ income saved for a rainy day still has value, as many of us are finding out the hard way. A financial review will set out not just how to ensure you have enough money to fall back on, but also what that required figure will be.
In these incredibly uncertain times, a personal financial review could be the most important undertaking you carry out. If you’re still not convinced and feel rather frightened at the idea, check out our post about dealing with financial overwhelm.
Why not join up to the 3 week Money Makeover, starting today 17th April?