Reviewing your finances regularly is an important exercise. It has nothing to do with whether your finances are perfect or not. See it like going to the hospital for a regular checkup, just because you’ve not had any health issues in a long time doesn’t mean you’re completely healthy. There are some health challenges that show no symptoms whatsoever and are better fixed at the early stage. But you wouldn’t find out unless you go for a checkup. If you treat your finances this way, you will be able to see where you can improve and what you should keep doing. In this blog, we’ll look at five key areas to focus on during a personal financial review. Let’s get to it.

1. Set Clear Goals

The first step in a financial review is to clearly define what you want to achieve with your money or the review in general. Are you aiming to save for a big project or you want to cut down on your expenses? Whatever it is, you’re free to make that decision. You can start by writing down all your financial goals. If you like, you can also separate them into short-term and long-term categories. This will guide your financial review by highlighting what’s most important to you. Knowing your goals helps you stay focused and avoid getting sidetracked by less important expenses.

Once your goals are set, align your financial review to serve these goals. If your target is to buy a house, calculate how much you need to save monthly. Adjust your budget to accommodate this, perhaps by cutting unnecessary expenses or increasing your income through side jobs. Try to update your goals regularly and when you review, it will keep your financial strategy relevant and focused.

2. Analyze Your Spending Habits

To manage your money well, you first need to know how you’re spending it. There are times you collect your paycheck and everything vanishes. But you know it didn’t exactly vanish, you spent it but probably don’t remember where it all went. In financial review, you need to track every dollar that goes out for a month. This goes without saying financial review isn’t an 8-hour shift. It can go on for like a month because it’s a practical exercise and not just something that goes on in your head only. Understanding your spending habits is the foundation of effective financial management, allowing you to make the right decisions about where to cut back and where you might need to spend more.

Once you have a good grasp of your spending patterns, it’s time to tweak your budget. Look at areas where you’re overspending and consider how you can cut back. Also, you might find areas where it’s worth spending more, such as buying quality groceries that could improve your health. The goal is to create a balanced budget that supports your financial goals while still allowing you to live comfortably. Regularly adjusting your budget based on your spending review helps ensure that your financial plan stays effective and sustainable.

3. Evaluate Debt and Savings

Your financial health is also dependent on how well you manage your debts, whether secured or unsecured debts. If you have debts that have become unmanageable, financial review can help you see how you can make things better. All you have to do is get a clear picture of credit card debts, mortgage, and other loans you have. Note the interest rate and monthly payment for each. 

There are different debt management options like debt consolidation, consumer proposal, budgeting, credit counselling, debt snowball method, avalanche method, bankruptcy, etc. What will work for you depends on your situation. You can speak with one of our debt experts at EmpireOne Credit to get a free consultation and guide on the best route to take.

Let’s talk about your savings.

Review your current savings rate and set a realistic goal to increase it gradually. You can automate your savings to ensure a portion of your income is saved before you have the chance to spend it. The rule of thumb is, save first and spend the rest. This can be as simple as setting up a monthly transfer to a savings account right after payday. Also, consider saving for specific goals, like an emergency fund, which can provide financial security in unexpected situations.

 Regularly contributing to and maintaining your emergency fund can reduce financial stress and prevent the need to incur high-interest debt in times of crisis.

4. Investment Review

Not everyone has investments. But this can be a good opportunity for you to consider it. If you already have investments, start by listing all your stocks, mutual funds, bonds, and any other assets you have. Evaluate the performance of each investment compared to your expectations and the market benchmarks. Consider factors like the return on investment, risk level, and how each asset fits into your overall investment strategy. This assessment helps identify underperforming or high-risk investments that might need reconsideration or rebalancing. 

Based on your investment review, make necessary adjustments to optimize your portfolio. If certain investments are consistently underperforming or no longer suit your risk profile, consider reallocating those funds into more suitable options. Also, take advantage of opportunities to diversify your investments to reduce risk. This might involve investing in different asset classes. If you know little or nothing about investment, you may speak with someone who is good in that area, they should be able to guide you.

5. Planning for the Future

Reviewing your finances is almost incomplete if you don’t factor in the future. Planning for retirement is an essential part of securing your financial future. Make a rough estimation of how much money you will need to live comfortably in retirement. Consider factors like your lifestyle, expected retirement age, medical costs, rise in inflation by that time. You can also consult with a financial advisor to help determine the amount you need to save each year to meet your retirement goals. Once you have a plan, contribute regularly to retirement accounts like RRSP. You can also take advantage of any employer matching programs. 

Bottom Line 

Everyone makes financial mistakes, but the key to financial growth is learning from them. It’s also important you reflect on past decisions that didn’t pan out as expected. Analyze these situations to understand what went wrong and why. Once you’ve identified past mistakes, it’s time to improve your financial practices. Implement changes based on what you’ve learned.

If during your financial review you realise it will be hard managing your debts or you are starting to lose sleep over them, there’s help available for you. You can speak with one of our debt experts at EmpireOne Credit. Your debt can be reduced by up to 80%, and interest will stop immediately. Call us at (416) 900-2324 to schedule a free consultation. Being debt-free feels good!