How to audit your finances

Coincidentally, I wrote and published this article on 30th April, the last day of this month. I did my personal finance audit today by answering these 10 questions that help me keep my finances in check on a monthly basis.

These questions are adapted from Chelsea Fagan and Lauren Hage’s book The Financial Diet: A Total Beginners Guide to Getting Good with Money.

I customized them to fit my goals and lifestyle.

At first, I struggled to keep showing up every month for this accountability session with myself. It’s a vulnerable experience as you get to face your financial mistakes head-on. Some months, I pace around my living room trying to justify why I shouldn’t do it.

Setting a monthly calendar reminder helped to avoid procrastinating. With time, I also realized that this process plays a major role in boosting my self-esteem and gaining clarity on what matters and what doesn’t.

This is the second article on how to create a budget. Read the first here if you missed it last week.

People do not decide their futures, they decide their habits and their habits decide their futures. — F.M Alexander

1. Which of the purchases this month were impulsive?

Before this pandemic happened, my girlfriend and I had our biweekly meetup in a mall. After a scrumptious Turkish breakfast, we went window shopping. I didn’t have plans to buy anything. But because there’s always a ‘sale’ at the mall, we found ourselves in a jewellery shop that had a ‘buy 3 for $10’ sign. We immediately started identifying the earings we loved, asking ‘would this look good on me?’ as we filled our little shopping baskets.

I picked my three pairs and was ready to pay. On my way to the cashier, I remembered two things. One, I hadn’t changed the earrings I was wearing for more than a year. Bringing these 3 pairs to my home would just add to the clutter of the other 4 pairs that I never wear. I don’t hate earrings, in fact, I often stare at other women’s cute earrings and make mental notes that if I ever spot the same type in a store, I would buy. But, I just never change my earrings unless it’s a groundbreaking occasion. I rarely get invited to these, sigh…

Two, new earings were not on my desire list-this is an excel document where I write the things I desire to own, give it a month and if I still feel it adds value to my life, I go ahead and save for it. If I bought these, I would have to feel guilty about the purchase at the end of the month while doing my audit. I hate that feeling.

I put them back on the shelf and explained my thought process to my friend. She was supportive of my decision, as she’s one of those that freely talk about money. She’s an earrings girl, she bought hers and we were left the store happy.

This question allows me to sustain my minimalist lifestyle, avoid filling my house with rubbish, and ensures that 90% per cent of the time, I stick to my budget.

2. How many of my purchases this month have long term value?

This question ensures that I’m constantly investing in myself and expanding my knowledge.

This could be through enrolling in paid courses, buying books, and helping a friend. Paying for a networking event also fits in this list, but so far I haven’t paid for one because I’m the weirdo who will attend an event and end up standing by myself at a corner, confidently.

It also constantly reminds me to make quality purchases that serve me longer.

We can get busy at work and doing life without being deliberate about self-improvement.

The same mindset and skills that got you to where you are now, are not going to get you to where you want to be five years from now. Have a self-improvement budget.

Last month, I paid $300 for an online ‘Launch your blog business’ course that I have been eyeing for the last 2 years. At the time I thought it was expensive, then I remembered a lesson from Steven Silbiger’s book The Jewish Phenomenon which talks about the 7 keys to the enduring wealth of a people. The first key is ‘understand that real wealth is portable; it’s knowledge.’

3. Which 3 things do I want to cut from my budget this month?

You will still end up making terrible financial decisions such as making impulse purchases. Once in a while, it’s okay.

The first mistake is never the one that ruins you. It’s the spiral of repeated mistakes that follows. Missing once is an accident. Missing twice is the start of a new habit. This is the distinguishing feature between winners and losers. Anyone can have a bad performance, a bad workout, a bad day at work. But when successful people fail, they rebound quickly. The breaking of a habit doesn’t matter if the reclaiming of it is fast. — James Clear

One of the costs I wanted to cut back on this year was transaction costs incurred while sending money home or making international transfers. If I invest in something that gives me a 4% return per year and spend 10% on transaction costs then it ceases to be an investment. Keeping track of these transaction costs helped me decide to save and do bulk transfers e.g paying the Chama for the whole year.

Doing this also frees my mind to think of other investments and save towards them as opposed to thinking about small multiple transactions each month.

4. Of all the items I bought, have any of them gone on sale?

Of course, it hurts to pay for something then see it go on sale the next day.

I haven’t suffered this yet. And I don’t think it would hurt as much if it was a purchase I had budgeted and saved for as compared to an impulse purchase.

This question will help you to delay gratification.

5. How much did I spend eating out?

Truth is, I don’t enjoy cooking. Being wealthy for me would mean having someone in my life whose job is to worry about what and when I eat. That doesn’t mean I’m a bad cook. My mama taught me a few tricks, I did Home science in high school and I can read and follow a recipe.

Because I have to answer this question using an actual figure based on tracking my expenses, this question gives me the psyche to learn better recipes, and cook tasty and a variety of meals at home. If not, I’ll be forced to seek solace in restaurants or fast food which is unsustainable. I can’t afford.

I have a budget for this which is part of recreation.

If it’s below or within budget, yaaaaaaaaaaay!. If not, I make a plan to reduce the cost.

To make this work, ask your friends to hang out in places that are within your budget, this ensures you enjoy the meal guilt-free. Well, this is after the pandemic is behind us.

While at home, you can order in once in a while. I have a friend who does this every Saturday, his cheat day. Which works because honestly not all of us are about to bake the banana bread.

6. Did I set a concrete savings/investment goal and did I meet it?

Vague goals produce vague results.

This helps you to avoid jumping on every ‘investment opportunity’ that comes your way, Ponzi schemes, or copying friends. I have to have an exact figure of how much I saved and invested every month. Otherwise, I wouldn’t know if I’m making progress.

Taking time on this question reinstates the reason behind your goal. Constantly ask yourself ‘why does achieving this savings goal matter to me?’ I like asking myself ‘which financial anxiety will I eliminate if I achieve this goal?’It keeps me grounded, I don’t care what everyone else is saving for. This is what matters to me.

When you know what matters to you, it’s easier to ignore what doesn’t. — Shane Parrish

Sometimes a better investment opportunity will be presented to you, factor in the opportunity cost, make a decision and move.

7. Going forward, what I’m I specifically saving up for?

Oh, I love this one!

Reviewing the previous goals makes me happy. You get to celebrate milestones when you realize that you achieved what seemed like a humongous and unachievable goal.

It also shows you a trend of how what matters to you changes over time. As Maya Angelou said, when you know better, you do better!

8. How much do I need to save every month to meet the goal?

This also eliminates vagueness. It breaks down the goal into small manageable amounts.

Want to save $1000 worth of an emergency fund within 6 months? $1000/6= $166.67. Baby steps people, baby steps!

9. What is the one tangible way I can increase my income in the next 6 months?

George S. Clason in the book The Richest Man in Babylon lists ‘increase thy ability to earn’ as one of the 7 cures for a lean purse.

Not long ago came to me a young man seeking to borrow. When I questioned him with the cause of his necessity he complained that his earnings were insufficient to pay his expenses. Thereupon I explained to him, this being the case, he was a poor customer for the moneylender, as he possessed no surplus earning capacity to repay the loan. “What you need, young man,” I told him, “is to earn more coins. What dost thou to increase thy ability to earn?” “All that I can do,” he explained. Six times within two moons have I approached my master to request my pay be increased, but without success. No man can go oftener than that.’ “We may smile at his simplicity, yet he did possess one of the vital requirements to increase his earnings. Within him was a strong desire to earn more, a proper and commendable desire.” In those days when I was a humble scribe carving upon the clay for a few coppers each day, I observed that other workers did more than I and were paid more. Therefore, did I determine that I would be exceeded by none. Nor did it take long for me to discover the reason their greater success.More interest in my work, more concentration upon my task, more persistence upon my effort, and, behold, few men could carve more tablets in a day than I.With reasonable promptness my increased skill was rewarded, nor was it necessary for me to go six times to my master to request recognition.-Excerpt from The Richest Man In Babylon

In January, my answer to this question was to publish these personal finance posts every Thursday. Consistently without fail. Get subscribers, launch a blog and earn through google ads.

Check out my blog here.

The good news is, this consistency is already paying off. My first client sent me a message earlier this month asking me to help them get their finances in order. I didn’t envision that would happen in 5 months but hey, I put in the work that gave me the confidence to identify as a personal finance consultant.

This question will inspire you to do more and be more. And will also give you an abundance mentality and optimism for a brighter (or a blinding one I dare say!) future.

10. Did I put money towards something I genuinely care about?

As you work towards getting more sssschmoney, it’s crucial to remind yourself not to forget to be empathetic, to see yourself as part of a larger whole.

Success is not a goal to reach or a finish line to cross. It’s a system to improve, an endless process to refine. — James Clear

This could be through supporting a friend or donating towards charity.

It keeps my heart open, grounded and always open to listen to other people’s challenges.

This care can also be for yourself by spending on a memorable experience. They say you can’t pour from an empty cup.

Which questions do you use to edit your finances? What should I add?

Originally published at https://www.thewealthtribe.com on April 30, 2020.

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Agatha from The Wealth Tribe

Agatha from The Wealth Tribe

Your voice of reason before you blow all your money this weekend! www.thewealthtribe.com