Do a quarterly review of your finances

By Sylvia Juuko

Whenever you set personal financial goals at the beginning of the year, it is important that you review them periodically to ensure that they take into account the changing circumstances.

In most cases, your short and long term goals are projections based on assumptions about your finances that you held at the beginning of the year. Therefore, a review will show progress made.

Reviewing the household budget is a good place to start for this quarterly review. It is not uncommon to desire a comfortable life. Therefore, aspiring to increase income to match the desired standard of living is a noble ambition.

The familiar root for most employees is to hope or negotiate for a pay rise. Unfortunately, you have no control over this, even when you certainly deserve it. Alternatively, you could have projected multiple sources of income.

Depending on how aggressive you were or what venture you undertook, this review should give you an indication of whether you will succeed or not.

Your household budget is also bound to come under pressure arising from the general price increments. In your review, you have to figure out how to make budget adjustment without endangering the well-being of your household.

Equally important is a review of expenses which have clearly been overtaken by events.

Most of our financial goals remain on paper due to failure to rein in expenses. In times like these, cutting back is necessary until your income levels improve or hopefully the price hikes are reversed after the environment improves.

The challenge with this is that at the time of your projections, you could have had anticipated changes in your life cycle that justify an increase in expenses and planned for them. For example, your social obligations could have changed such that you need to cater for a new member of the family, school fees have probably gone up or you have moved to a bigger place to accommodate the changes.

For some people, a move up a corporate ladder could come with the desire to match their lifestyle with the new position.
 

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Therefore, all these lifestyle changes come at a cost that will propel you to work harder to measure up with your peers. Unfortunately if you are using credit to prop this lifestyle, you will neglect saving which could have given you a base to invest and be able to sustain the lifestyle you desire.

Some people play ostrich and continue living like a billionaire on a working class income, ignoring the reality.

With this kind of mindset, a review of your plans may not be appealing and before you know it, you are one pay cheque away from poverty despite your decent income. Loan management is another equally important area to focus on in your quarterly review.

Some of your plans could have involved either taking on new loan, topping up on an old one or clearing an old obligation. While taking on a loan may be inevitable, it is important to recognise that being able to borrow does not mean that you can afford to.

Loans should be taken to increase your income streams. Any other reason, particularly, consumption will lead you into a debt trap. It is very easy to borrow to buy a car, rent an expensive house or buy the so-called trappings of life when you clearly cannot afford.

Once you focus on borrowing for consumption, it will be impossible to save and build an asset base that can support a decent lifestyle.

Instead, all you will be working for is to clear consumption debt, yet expenses continue to go up given the changing life cycle that comes with more social obligations. Most importantly, saving and investing should form an important aspect of your review.

If you fall short in this area, you are at risk of living hand to mouth despite your hard work.


The writer works with Bank of Uganda
personalfinance222@ gmail.com