HOW TO AUDIT YOUR PERSONAL FINANCES
The primary purpose of a personal finance audit is to
gain a clear and detailed understanding of your financial health, allowing you to make informed decisions,
identify areas for improvement, and
set achievable financial goals
Auditing your personal finances means conducting an analysis of your financial situation, including your income, expenses, assets, liabilities, investments, and financial goals.
Follow these step-by-step instructions to conduct a thorough personal finance audit.
STEP 1 Gather Financial Documents
Start by collecting all your financial documents, including bank statements, credit card statements, investment accounts, utility, bills, and tax returns. Having everything in one place makes the audit process more manageable.
STEP 2 Create or update your Net Worth Statement
If you already have a Net Worth Statement, add a new tab or column to populate with your new numbers. List all your assets (e.g., savings, the value of your investments, property, gold, luxury goods, etc) and list all of your liabilities (e.g., debts, loans).
Subtract the total value of your liabilities from the total value of your assets. This will give you your net worth value. Your net worth reveals your overall financial health and provides a starting point for improvement. Please contact us if you require support building your Net Worth Statement.
STEP 3 Create or update your Income and Expenses
Ideally this should be in the format of a spending plan/ budget.
Examine your bank and credit card statements to categorize your income and expenses.
STEP 4 Analyze Spending Habits
Thoroughly review your expenses in your spending plan. Go over your spending patterns and identify areas where you can cut costs. Look for recurring expenses that may no longer align with your financial goals.
In your spending plan, allocate some of your income for meeting your financial goals. For example if you are saving $5,000 for your family vacation in ten month’s time, you can allocate $500 per month from your income to your vacation savings category.
STEP 5 Review Investment Portfolios
Evaluate your investment accounts, including stocks, bonds, sukuks and pensions/ retirement accounts. Are there any underperforming assets you wish to redeem? Are there any assets that have reached their maximum potential and should be cashed in? Consider diversifying your portfolio for better stability.
Ensure your investments align with your financial goals and risk tolerance.
STEP 6 Review and set your Financial Goals
Define your short-term and long-term financial goals. This can be saving for a vacation, buying a home, or retiring comfortably. For the next step you will add these goals to your spending plan.
STEP 7 Create or Update your Spending plan/Budget
In your spending plan, allocate some of your income for meeting your financial goals. For example if you are saving $5,000 for your family vacation in ten month’s time, you can allocate $500 per month from your income to your vacation savings category.
STEP 8 Confirm the value of funds in your Emergency Fund is sufficient
Six months' worth of living expenses should be kept in a separate savings account to cover unexpected emergencies.
STEP 9 Put a date in your diary to conduct your next personal financial audit
Remember, financial audits are not a one-time event; they should become a regular part of your financial routine to ensure continued financial success.
In summary, a personal finance audit empowers you to take control of your financial future.
If you require support completing your financial audit, here at Wealth Oasis we offer a ‘360 Financial Review’ consultation. Visit our website to make an appointment.