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5 indicators that show you need to review your personal finances

Reviewing your finances is an important part of effective financial management. This means checking your income, expenses, savings, debt repayments and ensuring you can afford your current lifestyle. In this blog I will be writing about 5 indicators that show you nee to review your personal finances.

There has been a change to your lifestyle

As we go through the journey of life, there are many events that happen and many changes that take place. These can include changes in job, a new family member, relocating to a new area or increasing your assets. It can be easy to overlook the impact to personal finances as we are busy focusing on other matters. Reviewing your finances after or when you are expecting an increase in income is important because it helps you to proactively manage lifestyle inflation (This is when your expenses increase as your income is increase). This can often lead to less disposable income, reduction in savings and it also makes it difficult to pay-off debt.

Income does not last the full cycle  

If your income does not last until the next pay check, this could be an indication that expenses are higher than the income available. It is important to first check your fixed essential expenses to ensure you can afford them and that you are on the best deals available. As these are fixed expenses, there isn’t much flexibility in changing the amounts. Next, check the variable essential expenses these include food, fuel etc. These expenses are generally charged based on your usage and are therefore within your control to reduce. If you have any non-essential expenses, these can temporarily be placed on hold. It is important to ensure you can afford your debt repayments. If the cash shortages are starting to affect your repayments, ensure that you speak to the creditors or seek additional support.  It is important to try and create multiple sources of income this can be done through monetising a hobby or looking for additional work. 

Using short term debt or savings to finance day to day expenses like food, fuel or household bills.

Using short term debt can look like a convenient way of managing finances however, this is an expensive way of borrowing money. When you find that you are regularly using credit cards or overdrafts to finance your day-to-day expenses like food, fuel etc, this could be an indication that expenses incurred are higher than income. Regularly using savings for day-to-day expenses also indicates that expenses are higher than income. Review your finances and cut back were possible. Also ensure that short term debt incurred is paid back as quickly as possible. If this is not possible, seek additional professional advise on how limit the costs on the debt.

There are no savings or investments in place for the future and there is only one source of income.

Not having any savings or investments for the future is an indication that finances need to be reviewed because this will expose you to expensive debt when you are having cash flow problems. You can start by saving small amounts or a percentage of your income. I find that setting savings goals and visualising them motivates me to continuously save. Saving or investing for the future gives you the advantage of better future cashflows. Having additional money set aside will also open up different options. For example, if your job becomes stressful and you decide to leave, you have a buffer for when income starts coming in. 

A budget has been created but it’s not been implemented or reviewed. 

Before I understood how budgeting worked, I used to write down my budget and then forget about it. The problem here was that the budget I was trying to use was not realistic and did not match my lifestyle or goals. I ended up impulse buying and not having any savings in place. It is important to use a budget that matches your lifestyle for example, if you like spending money, allocate yourself an allowance in the budget. You can then use this allowance for anything you want, if for example you need more, you can save up over a few months then reward yourself. It is important to really understand your goals and lifestyle so that this can be reflected within your budget.  

Hope the above helps, feel free to get in touch with one of our trained coaches for further support.

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