It’s a good idea to review past mistakes.Warren Buffett
Typically the preserve of publicly listed companies and those with financial advisers working for them, the annual financial review is actually one of the best tools for generating a picture of the trends in your personal financial situation.
I have always had a vague sense of my financial position, but without actually sitting down and seeing what my various accounts were showing me, it was impossible to know if my casual approach was working for me, or if I was actually pouring money down the drain.
It’s not a particularly difficult exercise either, which, for me, means that it stands at least a chance of being something that I might do more than once.
Do It During An Ad Break
All you need to do is set aside 5 minutes to create a table with a row each for your main categories of accounts: current, savings, investments, pensions, loans and mortgages. Next to each one, write in the balance and the date. Then, next year, do the same again.
It’s that simple.
After a couple of years you can begin to see patters emerging and if you want to include percentage change on the year, then you can really see what’s happening. Pensions, savings and investments should be seeing steady increases, loans and mortgages hopefully going the other way. If not, it’s time to act and change what you are doing.
Of course, there will be various one-off life events that might mean the pattern is disrupted, such as paying for a wedding or receiving an inheritance. If you factor in this however, you should still be able to see the longer term patterns emerging and if there’s any problems that need to be taken care of, like needing to earn some more money.
For me, this exercise serves two purposes: It gives me a sense of comfort of knowing exactly how poor I am and, as I do it in November every year, it signals the start of the festive period. Holidays are coming.