- Date : 19/06/2020
- Read: 4 mins
- Read in : हिंदी
Conducting an audit of your personal finances can help you make the necessary changes to stay on track with your money. Here’s an easy way to do an audit, all by yourself, at home
As a financially independent adult, it is important to be conscious of where your money is going. One great way to stay on track is to conduct an audit for your finances. As complicated as it may sound, financial auditing is a simple procedure of checking your financial records, expenditures, savings, goals, loans, and any other money-related matters.
Set the ball rolling with this easy auditing process:
THE BACKUP PLAN
Fix a time
While a financial audit may not be very difficult to conduct, it may not seem much fun on a Sunday afternoon. On that note, it’s best to be fully invested both mentally and physically when undertaking the exercise. As a first-timer, it’s best to do it once a year, during a week when you have no other commitments. The fewer distractions you have, the more successful your audit will be.
Start by reviewing all your past bank statements, bills, spreadsheets, and any financial documents relevant to your audit. These records will help you understand the status of your finances, and give you a good idea of your spending habits. Account for investments such as life insurance, family health cover, and contingency funds. Create categories for each file to get a clear picture of your income as against your expenditure.
Do it jointly
If you have a spouse who is also earning, look at both your investment documents while conducting your audit. This is important because the sudden demise of a partner can cause serious financial issues. A sudden loss of income in the family that causes one to become the sole breadwinner can be extremely stressful not just financially but also emotionally.
Evaluate the need for health insurance for you and your family. Doing this early in your career can save you the strain of dealing with a money crisis during an unfortunate emergency. An early start will also ensure that your insurance premiums are less of a burden.
It’s very important to have a contingency fund in place. If you don’t already have one, you need to sort this out during your audit. Put in at least half a year’s income into your emergency fund so you can be prepared for any eventuality, including a lay-off. Ideally, the amount should be enough to see you through 6–8 months of unemployment.
A backup plan during an audit is created for a distant, unforeseen future. So, while it might seem trivial right now, it is going to help you stay financially strong during times of distress.
With a backup plan in place, you can now audit your savings and investments.
When embracing life, you may have a set of goals you wish to achieve. Whether it is short-term, long-term, or just happy retirement, a financial audit will give you clarity on the steps you should be taking to reach your goals.
Sometimes, even after all the planning and hard work, you may not have enough money left over to save for your goals. At times like these, you need to prioritise your goals based on your capacity to earn and save.
That said, it is important to approach your investments through a balanced portfolio, where funds are divided judiciously between equity, stocks, and mutual funds. This will ensure you make steady profits over the years and secure yourself against market fluctuations.
A financial audit cannot prevent unforeseen circumstances from affecting your finances, but it can help give you in-depth knowledge of your money. There are many ways to audit personal finances, but it does not have to be a dreaded chore. The easy process of auditing we have outlined above should guide you to a better and more financially stable future. Take a look at how taxpayers can now heave a sigh of relief with higher tax deduction limit.