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Reviewing and evaluating personal finance is vital to understanding where you stand financially and what modifications you need to make to reach where you aspire to be!
By analyzing your finances frequently, you can transform your beginner self into a finance expert.
After all, it’s about understanding money and creating financial goals that can work in your favor.
So, what are the key principles of money management and financial planning? How do you evaluate your personal finances? And lastly, why is it important to do that? Let’s find answers!
Review & Evaluate Financial Plan - Importance Of Doing It Regularly
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Evaluating the financial plan is necessary to give an insight into your financial situation.
Not the kind you perform in your head every now and again, but a thorough examination based on actual facts and numbers!
“You will continue to earn and spend without a monetary purpose if you do not do a good financial plan assessment.”
That’s what the expert, Matt D’Avella said in his video:
So, why is it important to review and evaluate a financial plan?
Reviewing your financial plan allows you to see if your pre-determined goals are reasonable in light of the current situation and make them more practical.
It can give you a good idea of whether you are on the right track financially and what you need to do to optimize your financial planning.
A financial plan review can be divided into three categories:
- Overall Money Spent
- Money Spent On Necessities
- Money Left At The Month End
Of course, you can use create more categories depending on your assessment. However, this is just a heads-up to get you started on the road.
Now you can choose to do that every month, every other month, twice a year, or even once a year. The choice is totally yours!
How Do You Evaluate Personal Finances?
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Financial well-being does not have to be a nebulous term. And, if we're being honest, it shouldn't be.
It’s not something restricted to only the wealthy. Yes! Everyone has the right to start their financial health journey to live up to the best life.
True, you may assess your financial situation and make efforts to improve it beginning today. Here’s how you can do it:
1. Assess Your Current Financial Situation
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The first step in the financial planning process is to become financially literate.
You can certainly do a better job knowing what to look for in the plan and how to compare things for the ideal result.
Start by taking notes of the following:
- What do you earn?
- What do you spend?
- How much debt do you have?
- How much savings can you make?
Remember to include all your multiple income streams while calculating your net worth.
Also, when you measure what your spending is, you have to consider everything, like:
- $20 Netflix subscription
- $15 for an online magazine portal
- $5 for grocery card maintenance, etc.
The key is to analyze anything and everything to have a clear understanding of your financial circumstances.
2. Evaluate Your Budget
The next step for an effective financial planning review is understanding, analyzing, and evaluating your monthly budget.
If your rough assessment results in overspending and finances all over the place, it hints that your budgeting needs an update!
- According to Barrie Today, 75% of Canadians believe they understand what they are doing with their finances. Great! Perfect!
- However, on asking, 50% of those had no idea where their money was going and had no sense of expense tracking!
And then we say why our savings account looks so lonely with only a few pennies inside. :p
- Take all your shortcomings into account and right the wrongs!
- Then, using all of the above as a guide, make a new budget and watch how quickly your financial situation improves!
Here watch a video by Lina Lecompte to manage your money and track your expenses:
3. Understand Your Equifax Credit Score
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Checking your credit report is vital for so many reasons, the primary being keeping your credit score range in check.
As you know, having a bad credit score will only make things difficult for your personal finances.
- Sure, adopting healthy financial habits is a good idea!
- Obtaining a secured credit card in Canada is a great way to increase your credit score quickly!
However, every financial habit and positive credit change can go downhill if you don’t understand how credit works.
This step is important for personal finance evaluation as you know your credit score is a number that shows how well you’re handling your money.
So, if it’s not in a perfect range, you need to work to improve your financial habits. (Goal of evaluation!)
Bonus: Click to read 7 credit report errors that could be smashing your credit history and thus your finances!
4. Evaluate Your Financial Goals
Lastly, after analyzing your earnings, spending, and savings, it’s time to review why you’re doing the financial planning assessment in the first place.
- You might want to buy your dream home.
- You might want to become financially aware!
- You might want to have a tension-free retirement.
- You might want to improve your credit rating
- You might want to save money for car finances.
Everybody can have different financial goals which they strive for.
However, you must understand your current goals and financial habits to analyze whether or not you are on the right track to achieve them shortly.
Bonus: If your thoughts are all over the place, here is a guide to making smart financial goals.
When To Do A Personal Finance Review?
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When is the right time to evaluate your personal finances?
The answer depends on your financial situation. For instance:
- If your budget keeps failing, it’s time to evaluate it!
- If your goals aren’t met, it’s time to do a financial revamp!
So the best time to do an evaluation is when you feel like doing so.
1. If there’s a change in your financial status!
Now the financial change can be a good thing or a bad thing. For example, your passive income job (say YouTube) has started to pay you more than your actual job.
Or, a sudden outburst (say Covid-19) caused a decline in your pay incentives and forced you to tackle money issues.
No matter the financial change, you must evaluate your financial plan every time it happens to update where it’s needed.
2. If you find it difficult to manage money!
According to Manulife Bank, you must be good at money management if you want to feel financially secure today and tomorrow.
By becoming good at money today (savings), you can feel relaxed tomorrow (retirement).
So if your today is in trouble, do a financial evaluation right now to fix the mistakes.
How Often Should You Do A Personal Finance Review?
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As we explained in the above sections, you can choose to do monthly, quarterly, twice, or once a year.
It depends on where you see yourself financially. Here’s a brief idea for your understanding:
1. Monthly Finance Evaluation
It can be a good idea to review all of your bank account and credit card activities once a month.
Why? Because you can find what’s not working quickly and can take measures sooner. Here’s what you should do every last week of the month:
- Evaluate your budget
- Calculate your spending and savings
- Subtract your debts, insurance, mortgages
If the result is positive, keep following your current practices, and if not, change your ways, make a new plan, and start from scratch.
2. Quarterly Finance Evaluation
Now, if you prefer to choose quarterly financial evaluation, you might take a different approach.
- Compare your current status to your future plan
- Evaluate your short-term and long-term financial goals
- Measure if you can get rid of debt, student loans, or mortgage payments in the next year
If your analysis doesn’t show an improvement in your financial condition and a decline in your debt payments, it’s time to take action!
3. Yearly Finance Evaluation
Some people may choose this path since they have a clear image of their financial situation in the form of their credit report at the end of the year.
According to Rebecca Lake, a yearly financial planning evaluation is evident to ensure the growth graph only keeps going upward.
It can give you a clear image of what you have achieved in the past year and what still needs your attention!
Bottom Line
Financial reviews are essential for determining where you are financially and how you can change your ways to reach where you want to be.
If you start doing it today, your tomorrow self will certainly thank you!
