Personal Finance Review

personal finance review
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In personal finance review, we will use two statements to determine your financial standing. These statements are cash flow statement and balance sheet or net worth statement.

Cash flow statement

This statement deals with your cash inflows and outflows. The inflows are every ringgit that you receive, such as your salary, dividends, and interests while outflows are every ringgit that you spend.

Why is it important to establish your cash flow statement? From this statement, we can determine if you have a cash surplus or cash deficit for the period. Obviously, it is best to have a surplus. With the surplus, you can use it for other purposes, such as investment. Generally, the cash flow statement is for one-year period.

To create the cash flow statement, you need to know your income and spending. If you are currently recording your earnings and expenditures, then it is easy to create your cash flow statement. You just have to input the figures into the corresponding spaces in the statement. If you do not have the habit of bookkeeping, you still can create a cash flow statement. Just record your income and spending for a month and we can use those figures for projection.

With the cash flow statement, we can clearly see our cash outflows and determine if adjustment can be made to some expenses to free up some cash.

Net worth statement

This statement records your assets and liabilities. With this net worth statement, we can see all the things that you own and all debts that you owe. Net worth is simply total assets minus total liabilities. Our target is to have a positive net worth, otherwise it means you have more debts than assets.

Based on this net worth statement, we can determine if we need to reallocate some resources. For example, if you have too much liquid assets which are sitting idle, you may divert the money into investment assets which could earn you higher return.

We can also determine which liability is bad and causing significant financial damage. By having a complete picture of your debts, you can devise a plan to eliminate the debts in a most efficient manner.

Next step in personal finance review

With both the cash flow statement and net worth statement, you will have a complete picture of your financial situation. With this information, you can devise a plan to unlock more cash, increase your assets and/or reduce your liabilities.

The plan will depend on your personal situation and preference. For a young person, I believe the ideal way should be using your free cash to increase your investment assets and reduce your liabilities at the same time. Nonetheless, if you are a retiree, this might not be a good idea.

Regardless of what you choose to do, this financial review will be your starting point in your financial plan. Hopefully this knowledge will help you to make the right financial decisions.

How can a financial planner help you?

I will help you to construct your cash flow statement and net worth statement, making sure you did not miss out anything in your income and expenditure, and also your assets and liabilities. An omission might not cause too much trouble, but if you leave out a big debt or a contingent liability, it will definitely be a big problem. Having said so, I can only rely on the client to provide the accurate information. If you really do not remember an item, I also cannot capture it in the statements.

With the information, I will give recommendations to improve your financial situation. The general objective is to get more free cash for other purposes. Depending on your objectives, I will come up with a few suggestions but you are the ultimate decision maker. Even if the plan is perfect, it would not bear fruit if you do not implement it. So you should communicate clearly with me and select a plan that you would implement wholeheartedly.

If you really cannot follow the plan, do not worry and let me know as soon as possible. I will come up with alternatives. Nonetheless, if you always fail to adhere to the plan, perhaps the plan needs to be overhauled. I will help you with this.

If you are interested in working with me to improve your finances, just leave your details here. I will reach out to you and see if we would be a good fit for each other.

Disclaimer: This post is for informational purpose only. You should use judgment and conduct due diligence before taking any action or implementing any plan suggested or recommended in this article.

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