Why You Should Consider Monthly Personal Finance Reviews

Back in the day, parents would teach their children how to balance their checkbooks and instructed them to do so on a monthly basis. While most of us now only use checkbooks for wedding showers, taxes, and rent, the habit of reviewing your spending once a month is still a good one. In fact doing so will not only allow you to build your budget but also help you stick to it. Trent Hamm of The Simple Dollar recently shared his techniques for performing a monthly financial review. Before going into his step-by-step process he explains that not knowing how your money is being spent is practically begging for financial troubles. He also mentions that while many personal finance apps can be helpful tools in the process, going over your statements manually is necessary for reasons we'll get into in a moment. The first step to conducting your monthly audit is to gather up your credit card and banking statements for that month. Once you have your current statements in front of you, you'll want to review each purchase and note what category it belongs to. Hamm recommends color coding your purchases by utilizing different colored pens or markers. As promised there is a reason that doing this manually as opposed to relying on an app is important. Unfortunately there are a number of things that can cause discrepancies on your statement ranging from computer glitches to actual fraud. By carefully reviewing your statements, you'll be able to catch these mistakes and get them resolved by your bank. If you notice a number of unauthorized purchases, it's likely that your card number has been compromised and you'll want to work with your bank to fix the problem ASAP. Once you've coded your entire statement, total up each category. If you don't have a proper budget, this process will give you a good starting off point to know how much you spend in each area (you may also want to do the same practice over the past few months of purchases to help determine an average). Also be sure to note your other expenses such as rent, utilities, and other bills that might not be charged to a credit card in order to give you a full picture of your spending. When it comes to creating a goal budget, Hamm suggests the 50/30/20 guideline. This means that you spend as much as 50% of your income on essentials — food, water, and shelter. The next 30% covers more frivolous purchases like cable, dining out, and other entertainment. Finally the remaining 20% is left for savings. Obviously the bigger you can make that last number the better. If you're doing this exercise for the first time, you may find that your spending is nowhere near the 50/30/2o model. In this case now that you know how your spending breaks down, you can begin to make cuts and set goals for the next month. Then as you continue to review each month, you can see your progress and make any necessary adjustments. It's also a good idea to account for any additional spending you may be facing in the near future (i.e. holiday shopping) and come up with a plan to alter your budget accordingly without affecting that last 20%. Setting a budget is an obvious priority when it comes to personal finance. However monitoring that budget and adjusting it is equally as important. By sitting down and reviewing your finances on a monthly basis, you will ensure that you know exactly where your money is going.

Why You Should Consider Monthly Personal Finance Reviews was originally published on DyerNews.com