FINANCIAL ASSESSMENT

Before you achieve your financial goals, you need to understand where you're at right now when it comes to your money. In this workshop you'll be able to assess your current financial position.

"Money is not 'good' or 'bad'. Money is money. It's up to you what you do with it."
krystal kleidon
Creator

lesson 1

Financial Analysis

It’s important that we start on the right foot when making changes to your finances. So before we get into any specific activities, I want you to answer some questions related to how you feel about your current abilities with finances. We will go deeper into Money Mindset in a different workshop but these are good questions to kick off our mindset thoughts. 

Print out the sheet below and fill in your answers. It’s also a great way to document your starting point so you can come back and see how far you’ve come.

lesson 2

TREAT YOUR FINANCES LIKE A BUSINESS

In order to analyse our finances, we need some data. While this data may be broken and limited, it is better than going into this Finance Assessment blind. 

always recommend to use accounting software for this and that is because I firmly believe you should be treating your finances like a business (and a profitable one at that). 

There are some people who recommend using cash to pay for everything, and while I can understand and fully agree that this can be a good way to manage your money, the reality is, for a lot of people it’s just impractical. 

My husband and I tried this system, and while it was good when it worked, there were often times when he would want to grab something from the grocery store on the way home from work, but our cash for groceries was at home, so the money would come from a different allocation. Or we would be out and want to go to lunch, but our ‘entertainment’ money was at home. 

I suggest creating two accounts, one is for spending, the other is for bills and expenses, but more on that in Week 4. For now, I want you to feel free to keep using your debit card (NOT your credit card). 

In the following activity, we will be linking our accounts to our accounting software (it’s free!) and the transactions will automatically import. 

Here’s how we do it:

Using Wave Software

The accounting software we will be using for this activity is called Wave – it is completely free, and while it is designed for businesses, because we are now treating our finances like a business, it is perfect for us. 

You can create a free account here: https://waveapps.com

This takes a little time to set up, probably around half an hour max, but once it is done, it will only take a few minutes each week to update. You can even do it while you watch Netflix. 

(Disclaimer: I am in no way affiliated with Wave and I do not get any kick back from recommending them, I just think they are amazing. I use them for all of my business and personal accounting, and I’ve used many, many different accounting software options and this is by far the easiest to use and offers a great range of options.)

 

Getting Started

Signing up with Wave is incredibly easy. Simply create your account with your email and password, name your ‘Business’ and where it asks for business type, you can put anything in – I just put in ‘Other Consultant’. The type you choose doesn’t affect how you use the software at all. Then you can connect Wave to your Bank accounts and import the last 30 days (or more) of transactions. 

Step 1
Add your name for your overall account (you can use your name), and select your business type from the list. If you do run a business, you can have a separate business account to a personal account using Wave.
Step 2
From the 3 options presented next, select ‘Organize Your Finances’.
Step 3
The next thing to do is to connect your bank accounts import the transactions. Be sure to check out their privacy policy (they are nice and secure). Be sure to import at least 30 days of transactions to get a good overview of your spending. Repeat this process for all of your accounts. Credit cards included!

Making It Relevant To You

As far as ‘out of the box’ accounting software goes, very few, if any, of the expense and income categories are going to be relevant to what you need to track your personal finances. This is where we get to tailor the software to might it relevant and accurate for you. 

First of all, we need to tackle your expenses. We need to create a reference in the software for each expense category you have in your life. You might find making a list of these first helps. Be sure to group like with like, for example you don’t need a separate category for electricity and water, when they both could come under ‘utilities’. 

A few ideas to note – keep ‘groceries’ separate to going out to dinner or lunch expenses, these should come under ‘entertainment’. Create a category for ‘debt payments’ which includes all debts other than your mortgage which should have a category of its own. Any spending that isn’t 100% essential every single week, that is buying clothing, Target shopping sprees and your daily take away coffee should come under ‘general spending’. 

Here’s how you can create these categories:

Step 4
From the side menu, click on ‘Accounting’ then ‘Chart of Accounts’. This will bring up the screen that shows you all the different categories currently in the system. Along the top, click on ‘Expenses’ and you’ll see the list of ‘Operating Expenses’ - we are going to change these to suit OUR own categories.
Step 5
Starting at the top, using the first operating expense in the list, click on the ‘Edit’ pencil icon on the right hand side. This will open up a new window. From there, you can change the ‘Account Name’ to the first of your expense categories. You can see in the example, I have changed what was ‘Accounting Fees’ to ‘Mortgage’ to reflect my expenses. Then click save. Repeat this process until you have added all of your expense categories.

Next we need to add in categories for our Income. Just like we have done for expenses, go through all of your different Income sources and list out the categories for them. 

Before you brush this off and say that you only have on income source, your job, take a closer look at where you actually get money from. 

Do you sell your used items online when you declutter? Add this as an income category. 

Do you earn interest on any of your savings accounts? Or earn dividends from investments? Have you received cash a a gift from a family member? 

Tracking every bit of our income means we can see a complete picture of our finances and it also helps form positive finance associations. 

Here’s how you can create these categories:

Step 6
From the side menu, click on ‘Accounting’ then ‘Chart of Accounts’. This will bring up the screen that shows you all the different categories currently in the system. Along the top, click on ‘Income’ and you’ll see the list of ‘Income’ - we are going to change these to suit OUR own categories.
Step 7
Starting at the top, using the first income type in the list, click on the ‘Edit’ pencil icon on the right hand side. This will open up a new window. From there, you can change the ‘Account Name’ to the first of your income categories. You can see in the example, I have changed what was ‘Consulting Income’ to ‘Salary’ to reflect my income. Then click save. Repeat this process until you have added all of your income categories.

Categorising It All

So we have all of our categories set, we have imported all of our transactions, now we need to ‘verify’ these transactions. This simply means going through each transaction and associating it to a category. 

This is something I do on a weekly basis in order to keep on top of it all. You can do it daily if you’d like, but I find it only takes a few minutes each week. 

As you get used to doing this, you’ll find yourself thinking twice before you purchase something because you know you’ll have to categorise it later. There’s no hiding from the data – and being honest is one of the rules remember. 

Here’s how to do it:

Step 8
From the menu on the left side of the screen, select ‘Accounting’ followed by ‘Transactions’ and you’ll see a list of all the imported transactions from your bank accounts. Some may already have a category assigned to them as best guessed by the software, however they aren’t always accurate so be sure to check.
Step 9
Now you can start going through each transaction and associating a category to them.
Step 10
After you have categorised the transaction, and you are happy with it, be sure to click the ‘tick’ so it turns green - this shows that you have verified the transaction.

If there are any transactions you aren’t sure about, or don’t know where they have come from, you can either associated them with General Spending, or you can do a little more investigation to find out what the transaction is. Some times all the data doesn’t come across from your bank account so you may need to log into your bank to check it. 

This can be quite a process, but I promise you, it will be worth it. The information you will be able to see from this can be eye opening and can give you a much deeper insight into where you are spending most of your money and where you need to re-evaluate your spending. 

Next, we need to take a look at the reports available from this data. 

Creating Reports

Now we have all the data imported, and the transactions have been categorised and verified, it’s time to look at the reports and see what they tell us. 

Here’s how you do it:

Step 11
From the menu on the left side of the screen, select ‘Reports’ and on the following screen select ‘Profit & Loss’. You can then choose the date range you’d like to report. At the top you’ll see an overview of your income, minus your expenses. Depending on how you categorise your transactions, your ‘Net Profit’ will often balance at $0. This is not a bad thing. The above snapshot is a mock up which is why the ‘Net Profit’ shows a positive. For my transactions, I categorise everything, including savings, which means I always end up with a balance of $0. If you find your ‘Net Profit’ is a negative, you need to look closer at your expenses and where you can cut back. This could mean you’re living above your means and are living a negative balance financial life.

If you’re wanting to understand your finances, and gain financial confidence, you need to actually look at the data. You cannot possibly move forward with your finances if you don’t look at where you’ve been, identify area’s to work on and also identify areas you do well. 

lesson 3

SWOT YOUR FINANCES

Now we have the data and we can clearly see where we spend more money and where we hold back, it’s a good time to take the next step in analysing our finances and perform a SWOT analysis. 

Businesses often use SWOT analysis to help determine their plan moving forward. 

SWOT stands for Strengths, Weaknesses, Opportunities and Threats. Applying this to the data we have from Lesson 2, we can look at our finances and easily identify our Weaknesses, but I want to take time to pay attention to the other areas too. 

Regardless of what your financial situation is, I guarantee there are strengths in there too. Often we are our harshest critics, especially in an area we feel needs improvement. But throughout this course we will be moving our mindset from a negative one, to a more positive and confident one, and we can start with that right now. 

Activity

Below you will see a SWOT template that you can download and print for this activity. Take a moment to look over your transactions from the previous activity, and reflect on how you have handled your finances previously, then fill in the boxes. 

Remember, you can complete this in any way that makes sense to you. There is no right or wrong way to do this, and you can go into as much or as little detail as you like. You can even draw pictures if you want! 

Here’s a little more on each section to help you get started:

Strengths: Complete this section first, then come back to it at the end and add to it. This can include anything from earning a good income, always paying your bills on time or even your generosity. 

Weaknesses: As I said, we often criticise ourselves a lot so I don’t need to give examples here, be honest but don’t be too hard on yourself.

Opportunities: This is where you can outline areas for growth, such as additional savings by cutting spending, a side hustle you’ve been working on, or anything else that is going to help you move towards your financial goals. 

Threats: Here you’ll add in anything that poses a threat to railroading your financial goals. Things like overseas trips you have planned (easily to spend excessively) or even having a credit card are great examples. 

lesson 4

TRACK YOUR WEALTH

As part of the overall analysis of your finances, I want to introduce you to the concept of tracking your overall wealth. 

Tell me, if I asked you right now how much money you are worth, would you be able to answer me? 

I’m not talking about what your insurance would pay out in a death benefit, or how much money you have in your bank. I’m talking about your overall wealth.

To work this out we take our assets, minus our debts, and we have our overall wealth. 

Before we dive into the next activity, I want you to quickly write out somewhere what you believe your overall wealth is right now… (be sure to date it when you write it out too!!).

Tracking your overall wealth is a far better way to understand your finances than simply looking at your savings or your debt in separate ways. It’s easy to look at just your debt, and feel like it’s piling up and overwhelming. As you pay it down, you don’t notice how big of an impact it can have on your overall wealth. 

Also, when you are tracking your overall wealth, you’re far less likely to add more debt to it. 

Seeing that number as a total wealth, then knowing you’ll have to add a big ‘minus’ in if you add another debt, can be quite the deterrent for going out and adding more debt. 

Even more exciting, as you see the overall wealth number increase, it can motivate you to keep going and keep moving towards your financial goals. 

On the download sheets below, I want you fill out all the assets you have as well as all the debts. 

To give the most accurate version of these numbers, think of assets as anything you own such as your possessions in your home and the value you’d get for them if you were to sell them all (not replace them in the stores), any vehicles and your home if you own it.

Be sure to also include any shares you own, savings you have or any other investments. 

Then add in your debts, including any credit cards, store cards and loans – tally it all up and then minus your debt from your assets and you have your overall wealth!