Monthly Financial Review
On the first Saturday of each month (or whatever day you do your Weekly Review, I do a monthly financial review. It normally takes me another 30 minutes or so. This is where I record my Cash-flow Statement into an A4 notebook. I strongly recommend you start to do the same; I now have monthly Cash-flow Statements going back to 2006.
The purpose of this is extremely important; this is where you will see if you are getting wealthier or poorer. Put the previous month & year at the top of the first page, then divide the page into four equal segments. In the top left write – Income.
Top left is – Income.
Top right is – Expenses
Bottom left – Assets
Bottom Right – Liabilities.
1. Income
In this segment, record all income for the month, by total for each category for example Salary and Wages, Bank Interest, Dividends, Refunds, Gifts. If you are using a software or on-line tool, this will total everything up for you and take the donkey-work out of it.
2 .Expenses
In this segment record all expenses you have incurred, again by total for each category for example Mortgage, Groceries, Child Care, Leisure, Transportation etc.
3. Assets
Record every asset you have as of the last day of the month for example Bank and Cash, Investments, Shares, Pension amount, Property Investment etc. You will have done this already, to establish what state your finances are in. Now you will repeat it every month. There is no need to list all of your possessions again, unless you have bought or sold a major item; Just use the figure from the original exercise.
4. Liabilities
In this segment record each liability for example Credit Card, Loans, Mortgage From this you will be able to work out the following indicators of your wealth.
In the space below the table record the following indicators:
5. Net worth
This is simply a sum of your Assets minus any Liabilities. Your aim is to get this number into the positive and increase it.
6. Real net worth
This is Your Net worth not including your house and mortgage (as you have to live somewhere).
7. Current net worth
This is Current Assets minus current liabilities. As I said before, current Assets are things like bank and cash or any investments that you could turn into cash quickly. Current Liabilities would be things that are due soon like credit cards, but not long-term debt like mortgages and loans.
Control Your Expenses as Your Income Increases
If you perform the exercises above religiously every week and month you will begin to get a real handle on your money. As your income increases you will be able to ensure that your expenses don’t spiral as well. You will also be able to budget better and spend only what you intend.
Okay I admit it may take you years to achieve financial freedom, but as my Mum says,
“Those years are going to pass anyway, so you might as well make a start.”