Okay, so money. It can be stressful, confusing, and sometimes feels like it’s running away from you. But what if you could take control, understand where your money is going, and actually start working towards your financial goals? That’s where a monthly financial review comes in. We’re going to break down exactly how to do a monthly financial review, why it’s important, and how it can seriously improve your financial health. Whether you’re just starting out or you’re a seasoned budgeter, there’s something here for you.
Why Bother with a Monthly Financial Review?
Let’s be real, nobody loves thinking about their finances every single month. It can feel tedious, especially if you’re facing challenges like debt or inconsistent income. But think of a monthly budget review as a regular check-up for your financial well-being. Just like you visit the doctor to catch potential health problems early, a monthly review helps you identify spending leaks, adjust your savings strategy, and stay on track toward your long-term financial goals. Ignoring your finances is like ignoring a weird noise in your car – it might go away on its own, but it’s more likely to turn into a bigger, more expensive problem down the road. One of the major benefits of monthly financial review is the early warning system it provides.
Think about it: How often do you actually know where every single dollar goes? We swipe cards, tap to pay, and often lose track of the little expenses that add up. A monthly personal finance review forces you to be mindful of your spending habits.
Setting the Stage: Preparation is Key
Before you actually dive into crunching numbers, you need to gather your financial information. This includes bank statements, credit card statements, investment account statements, loan statements, and any other documents related to your income and expenses. Having everything in one place will make the review process much smoother. I’ve found that creating a dedicated folder (physical or digital) for these documents saves a ton of time.
Also, define your financial goals. What are you working towards? Is it paying off debt, saving for a down payment on a house, investing for retirement, or something else entirely? Knowing your goals will give your review context and help you prioritize your spending and saving.
The Monthly Financial Review Process: Step-by-Step
Okay, now for the nitty-gritty. Here’s a breakdown of the steps involved in conducting a monthly financial review.
Step 1: Calculate Your Income
Start by determining your total income for the month. This includes your salary, wages, business income, investment income, and any other sources of revenue. Be sure to calculate your net income (after taxes and other deductions) since that’s what you actually have available to spend.
Step 2: Track Your Expenses
This is where many people stumble, but it’s also the most crucial part. You need to track everything you spend. This means every coffee, every subscription, every online purchase, everything.
You have a few options for expense tracking. You can use a spreadsheet, a budgeting app (there are tons out there), or even good old-fashioned pen and paper. The key is to choose a method that works for you and that you’ll actually stick with.
Categorize your expenses to get a clearer picture of where your money is going. Common categories include housing, transportation, food, entertainment, debt payments, and savings.
Step 3: Compare Income and Expenses
Now, compare your income to your expenses. Are you spending more than you earn? If so, you need to identify areas where you can cut back. Even if you’re not overspending, you might still be able to find ways to optimize your spending and save more. The monthly income and expense review is designed to show you how your money is being allocated.
Step 4: Review Your Net Worth
Your net worth is the difference between your assets (what you own) and your liabilities (what you owe). Tracking your net worth over time is a great way to measure your overall financial progress.
Calculate your net worth by adding up the value of all your assets (cash, investments, real estate, etc.) and subtracting all your liabilities (debt, loans, etc.). Review how your net worth has changed over the past month. Did it increase, decrease, or stay the same? What factors contributed to the change?
Step 5: Assess Your Progress Toward Goals
Evaluate your progress toward your financial goals. Are you on track to achieve them? If not, what adjustments do you need to make?
For example, if you’re saving for a down payment on a house, are you saving enough each month to reach your goal within your desired timeframe? If you’re paying off debt, are you making progress toward reducing your debt balance?
Step 6: Identify Areas for Improvement
Based on your review, identify areas where you can improve your financial situation. This might involve cutting back on spending, increasing your income, or adjusting your savings or investment strategy.
Consider setting specific, measurable, achievable, relevant, and time-bound (SMART) goals to help you stay focused and motivated.
Digging Deeper: Specific Areas to Examine
Let’s go beyond the basics. A comprehensive monthly financial review should also include a closer look at these specific areas:
Debt Management
Review your debt balances and interest rates. Are you making progress toward paying off your debt? Could you benefit from consolidating your debt or refinancing to a lower interest rate? This is a crucial step to ensure monthly financial health.
Savings Goals
Evaluate your savings progress. Are you saving enough to meet your short-term and long-term goals? Consider automating your savings to make it easier to save consistently.
Investment Review
Review your investment portfolio. Is it properly diversified? Are you on track to meet your retirement goals? Consider consulting with a financial advisor to get personalized investment advice.
Insurance Coverage
Make sure you have adequate insurance coverage to protect yourself against unexpected events. This includes health insurance, auto insurance, homeowners or renters insurance, and life insurance. It’s easy to overlook these crucial aspects when just starting out.
Subscriptions and Recurring Expenses
Take a hard look at your subscriptions and recurring expenses. Are you actually using all of those services? Can you cancel any of them to save money? I recently realized I was paying for two streaming services that I hadn’t used in months! Cutting those saved me a significant amount each month.
Take Control of Your Financial Tracking with SpendTab
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Tips for Sticking with It
Consistency is key when it comes to monthly financial reviews. Here are some tips to help you stay on track:
- Schedule it: Treat your monthly financial review like an important appointment and schedule it in your calendar. Choose a day and time when you’re least likely to be interrupted.
- Make it a habit: Try to do your review around the same time each month so it becomes a routine.
- Automate as much as possible: Set up automatic transfers to your savings account and use budgeting apps to track your spending automatically.
- Be patient: It takes time to develop good financial habits. Don’t get discouraged if you slip up occasionally. Just get back on track as soon as possible.
- Reward yourself: Celebrate your progress along the way. Treat yourself to something small when you reach a financial milestone.
- Use a monthly financial review checklist: Create or find a comprehensive checklist to ensure you don’t miss any important steps during your review. This is a great way to stay organized.
Tools to Help You Succeed
There are tons of tools available to help you with your monthly financial review. Here are a few popular options:
- Spreadsheets: Microsoft Excel and Google Sheets are great for creating custom budgets and tracking your spending.
- Budgeting apps: Mint, YNAB (You Need A Budget), and Personal Capital are popular budgeting apps that can help you track your spending, set goals, and monitor your net worth. These platforms can automate much of the tracking.
- Financial planning software: Quicken is a comprehensive financial planning software that can help you manage your finances, track your investments, and plan for retirement.
- Financial advisors: Consider working with a financial advisor to get personalized financial advice and guidance. They can provide expertise tailored to your specific situation.
Monthly Financial Review for Small Business Owners
The principles are the same, but the stakes are higher for small business owners. A monthly financial review for small business owners should also include:
- Revenue analysis: Track your sales revenue and identify trends. Which products or services are performing well? Which ones need improvement?
- Cost of goods sold (COGS): Analyze your COGS to identify ways to reduce costs and improve profitability.
- Operating expenses: Review your operating expenses to identify areas where you can cut back on spending.
- Cash flow: Monitor your cash flow to ensure you have enough cash on hand to meet your obligations. This is particularly crucial for smaller businesses.
- Profit and loss (P&L) statement: Review your P&L statement to assess your overall profitability.
- Balance sheet: Review your balance sheet to assess your overall financial health.
Think about how a monthly financial review can help a freelancer. Consider Sarah, a freelance graphic designer. She struggled to keep track of her income and expenses, leading to a lot of stress and uncertainty. After implementing a simple monthly financial review process, she was able to identify areas where she was overspending (like eating out too often) and areas where she could increase her income (by raising her rates slightly). This gave her much more control over her finances and reduced her stress levels significantly.
Why Now is the Time to Start
Procrastinating on financial review is like ignoring a slow leak. Each day it continues it causes more and more damage. There is no better time than now to start your monthly financial review process. It’s an investment in your future self that will pay dividends in the form of reduced stress, better financial decisions, and the achievement of your long-term goals. Think about the peace of mind that comes from truly understanding where your money is going and knowing that you’re on track to achieve your dreams.
Regularly doing a monthly financial review is crucial. It is the cornerstone of sound personal finance and a vital practice for ensuring long-term financial stability and success. Don’t put it off any longer; take the first step today.
As you embark on your monthly financial review journey, remember that SpendTab is here to help simplify the process and provide you with the insights you need to make informed financial decisions. Start your financial tracking journey today by creating a free account at SpendTab.com. It’s time to take control of your money and start building the financial future you deserve!