Financial audit and readjustment

Sometimes it’s good to step back and think money. This means that its good to make a personal financial audit two to four times a year, to keep money matters in control. Procedure for personal financial audit is check – measure – readjust. For the best result, one should keep a record on financial matters, this makes it easier to compare the current situation to the past.

Check your bank accounts and bills

The backbone of personal finance is the bank account or multiple bank accounts. Because this is where the true money is. Start by collecting bank statements from last 3 months and read them through. For some, this may sound boring, but this is how to spot those big money holes and possible double billings.

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Photo by GotCredit

To make things more concrete and visual, take notes while checking the bank statements and try to find regularly recurring spending. Furthermore, try to make an overall picture of your money usage. Include incomes like salary, possible dividends, and support payments.

Make a budget

Make a budget using notes mentioned above. Recently I wrote about budgeting in my first blog post, two months ago. The idea of budgeting is to calculate and estimate on a spreadsheet or on a paper how much money comes in and how much it goes out. Split your expenses and incomes on multiple categories and try to balance the budget, so that you can cover all your expenses and still have money for savings.

To do a budget, you can use a simple Excel spreadsheet or service like Mint money manager. Mint works with most US banks and financial institutes that have internet service. Mint automatically collects transactions from the bank and makes budgeting easier.

Adjust loans and credits

Most of us have loans for the house or the car. Some of us have credit card debt. It’s always wise to try to keep a distant to loaning money. To get your debt in check is best to start with the interest rate. Interest rate tells the value of money. The goal is to get money loaned with low-cost, this means low-interest rate.

If you have multiple credit debts or small loans best thing is to try to combine these into one, single low-interest rate bank loan. Products like credit card debts and fast loans have high-interest rates. Secondly, if you have multiple loans, you’re also paying multiple handling fees. Paying only one bank loan means lower handling fees.

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If you can’t combine loans you have to pay them separately. The debt snowball is the best way to get out of debt. This means concentrating available cash to the smallest loan first. This happens by paying other loans with the smallest amount and using the most of the capital to the smallest loan. After the smallest loan gets paid the second smallest loan becomes the target. This is the way to get all loans paid in an accelerated way. By doing this you have more cash available after every paid loan, to pay the next one.

Make a saving plan

Saving money is important. Most of all, saving is mean to grow wealth and way to make a safe haven for a case of an emergency. The ideal would be that a person would have at least 2 months salary in savings.

Everyone gets old, or at least most of us. This means that there are days of retirement ahead. Most of the countries have systems like state pension. Pension provided by the government is usually the minimum, covering only necessary living. This is one reason why it’s good to save money, ensuring decent financial bumper for the retirement.

loan photoStart saving by opening a saving account or an investment fund contract, the main thing is that it’s intended for saving. Set automatic transaction to transfer money every payday to your savings account. When saving money is automatic, it is easy to forget and maintaining saving plan doesn’t take any effort.

The interest of savings is something to consider. This is important at the moment, cause interest rates are low and bank accounts may have an even negative interest rate. The best option would be other investment instrument or a product like funds investing in stocks or corporate bonds. Think that, if you get 7.5%  annual interest to your invested capital, it means that your investment would double in ten years.

Other adjustments

After collecting and reviewing all the bills, bank statements and doing the budget. It still might feel that something could be done. So, when looking the bills, usually everyone has these regular, monthly bills. These are an electric bill, phone bill, possible heating bill, pay-TV, the internet, etc. First, get rid of all the unneeded services. And After that ask competitive offers from other service providers for services that are comparable to the current service you use. I try to ask competitive offers for my electricity and phone ones a year.
loan photoPersonal habits reflex our values and what we think is important. Everyone could ask themselves: “Do I need this? And what do I actually need?” It’s easy to lower expenses after realising what is the level of living that you’re willing to keep.

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