It happens to us all at some point – you’re sure you have a certain amount in your account until you check your balance…. Your first thought is that there must be some cyber fraud going on, someone has stolen your money!! Then you download your statement and after looking at each line item you realise the painful truth – your money wasn’t stolen, you actually spent it. Then you start asking yourself how it all went without you realising it.
The thing with money is that it’s such a faithful servant, it never complains when you send it on an errand. At no point will money warn you, “Hang on! if you send me on this, you won’t have enough left for that”. So, this means you need to take charge of your spending by consistently doing a personal account analysis.
This is simply a personal evaluation of your bank statements to figure out how well you are doing financially. Usually, financial account analysis comes up when you start to figure out that you are spending more than you are earning or saving. While this shouldn’t be the major reason why you should conduct an analysis of your accounts, having a concrete idea of how you’re doing financially helps to set you back on track.
So, how do you do a personal financial analysis?
- Calculate Your Earnings – These could be from salaries, returns from your business, interest in savings, returns on investment, etc.
- Calculate Your Expenses – What are the regular areas you spend money on? These could be rent, transport, utilities, groceries, entertainment, etc. The easiest way to figure out your expenses is to subtract what is left in your account at the end of the month, from what came in the last pay-check. It’s important to calculate exactly what you spent money on.
- Calculate Your Net Cash Flow – Subtract your total annual expenses from your total annual income. The answer is your net cash flow, and it can also show how well you have been saving. If there is a positive surplus of net cash flow, then you earned more than you spent (that surplus should be your savings). If the net cash flow is negative, then you spent more than you earned (which means you probably didn’t save as much as you could).
- Check Your Assets – These could include:
- Liquid assets: mainly cash or things that can easily be turned to cash, such as savings, fixed deposits, shares, etc.
- Non-liquid assets: Houses, land, cars, etc.
- Check Your Liabilities – These refer to what you owe, which could be money borrowed from friends and family, loans, etc
- Calculate Your Net Worth – Subtract your liabilities from your assets: this gives you your net worth. Your net worth represents how much you have after you have paid off all your debts. And a negative net worth shows that what you owe is more than what you own. Click HERE to download your personal Net Worth Calculator.
Analyzing your financial account is a way to help you monitor your spending and clearly see your earning and spending habits. Ideally, you should do this assessment at least once a quarter as part of your drive to create wealth building habits.