We often read about the importance of reviewing our finances in articles on budgeting and financial planning, but how exactly does it work? It is not just about checking the balance in your bank account; it involves a full understanding of your financial habits and the spending decisions that you make. Here are the steps you can take to thoroughly assess the state of your finances and to help you get your finances ready for the future.
A financial health check is basically a review of your financial situation. It is about understanding where your money comes from, where it goes and how effectively it is being managed. This review helps you identify areas needing improvement and opportunities to save money, reduce expenses or make better decisions for your savings. You can do a free financial health check yourself or work with a professional advisor for a more in-depth analysis.
Start by looking at all sources of income. This includes your salary, side hustles, investment dividends, rental income and interest earned on savings accounts. Understanding your total income is the first step as it sets the foundation for how much you can spend and save.
Now, delve into your spending. Ask yourself a few quick questions about your spending habits, such as what do I want to spend my money on? What is important for my financial future? Does my spending align with my financial goals?
Go through your bank statements and track where your money goes each month. Pay special attention to any regular spending on takeaway coffees, weekday lunches or impulsive online purchases. These might seem small, but they can add up to significant sums over time. This exercise is not simply about cutting back you spending, but knowing whether it aligns with good financial health goals.
Bills are a regular and inevitable part of everyone's finances, but sometimes there is room to reduce them. Check if you can switch providers for services like electricity, gas, internet or mobile phone plans to cheaper alternatives without compromising on service quality.
Check your current savings status, including pensions, Individual Savings Accounts (ISAs), other investments and your emergency fund. Are you contributing enough to your retirement? Is your emergency fund sufficient to cover at least three to six months of living expenses? Adjust your contributions if necessary to meet these objectives. Making the most of any savings you have can make all the difference to your personal finances.
Debt management is a key component of any conversation about financial health. List all your debts, including overdrafts, credit cards, loans and any car finance or mortgage, if you have it. Prioritise your list by interest rate and balance and create a realistic plan for paying these debts off, ensuring that you avoid dipping into your emergency fund or racking up more debt as you do so. Regularly reviewing your most recent account statements for any debt that you have can help you stay on top of it and track the progress you are making.
Your credit report is a snapshot of your financial history. You can get a free report from major credit bureaus, like Experian, and dispute any errors you find, as these can affect your credit scores and future ability to borrow money or rent a place to live. A higher credit score can give you access to a wider range of financial products and benefit your financial well-being.
Finally, evaluate whether your current budget matches your current financial lifestyle needs and future goals. Adjustments might be needed if your monthly budget doesn’t track your actual finances, causing you to dip into savings or is too broad and prevents you from meeting your savings goals.
If you are looking for a more detailed look at your financial health, you could use a video banking service and book an appointment with an experienced advisor. Highly qualified personal bankers can provide tailored financial advice to help you review your past finances and set up a plan for your financial well-being.
Performing a financial health check is a proactive way to ensure you are in control of your finances and on track to meet your financial goals. It might take some time and require adjustments, but the peace of mind and financial security it brings are well worth the effort. You could start doing a review by yourself, and then you can always book a digital financial health check with a professional, if you need more advice.
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