Cleaning Up Your Finances: Why You Need a Financial Overhaul

We tidy our homes, declutter our wardrobes, and even detox our diets, but cleaning up our finances is often a not-so-familiar phenomenon. Consider "financial overhaul" an environmental sanitation for your finances.

This exercise aims to check and balance your assets, address pitfalls, and realign your money habits with your current life circumstances.

You're returning to the drawing board and creating strategies to help you reach your big goals, whatever they may be. In this article, you'll learn to effectively conduct a financial overhaul.

How to Conduct a Financial Overhaul

If you own some assets, feel stagnant, are overwhelmed by debt, or have experienced a major life event, you should conduct a financial review. Essentially, everyone needs to do a periodic financial reassessment. However, the process can look different for different people.

A financial overhaul could mean finally sorting those outstanding debts, setting up pensions, creating spending boundaries, or building a real emergency fund. It can also mean rethinking expectations about family obligations, how we define wealth, and our future.

Whatever your drive might be, the following steps are the core principles of conducting any effective financial fixup:

Read also: Adjusting Your Pensions After Major Life Changes: 6 Strategies That Work

Know What You're Working With 

What do you cumulatively own in assets, liabilities, and cash? Now, how is each faction of your finances faring independently? It's important to know this detail like the back of your hand because it is, in fact, the crux of your overhaul. 

If you’ve been tracking the assets at your disposal, it's easier to compile this information. If you haven't been religious with monitoring your finances, now is the time to ask for a bank or pension statement and update your portfolio.

Declutter

Remember, your financial overhaul is tidying up your finances. Therefore, you should expect to eliminate extraneous and irrelevant expenses. You want to reduce financial waste and expenses you don't need.

Cancel those subscriptions to tools or services you no longer use, eliminate habitual spending, and build a spending plan or budget. You’ll learn how to build an efficient spending plan as you progress in this article.

Build a Spending Plan

Building a spending plan simply entails giving every naira you own a job, including the fun and miscellaneous money. This means you’re no longer spending money on impulse purchases. One great way to achieve this is by creating budget categories based on your needs and wants.

Bear in mind that needs are essentials that we permit to take prominence over wants. Your needs can be further broken down into immediate and secondary needs. If you can live without that item now, you'd better allocate resources to other things.

In this budget, you should also factor in the debts you owe and incorporate a plan to strategically sort them. It helps to automate bills and align with an accountability partner if you struggle with this area of your life.

Read also: How to Pay off Debt Faster and Live Debt-Free

Create Financial Boundaries 

You must place strict boundaries, or you'll always have your finances in a mess. For example, learn to politely but firmly decline unnecessary financial obligations, regardless of family or friendship pressures.

Even in cases where your income increases, you could choose to steer clear of flamboyant and impulsive lifestyle inflation. And business owners may resolve to separate business and personal finances and not dip into money allocated for business.

These boundaries are often relative; the onus falls on you to introspect and identify what you consider "going overboard."

Start or Revisit Your Investment Plan

If you have existing investment plans like pensions, it's the perfect time to analyze each one and optimize them. You could opt to balance your portfolio by investing in low-risk securities like mutual funds. 

Remember to always consult your investment experts if you're unsure how to approach this. And if you do not have existing investments, you can weigh available options and choose the most suitable ones.

Investments provide long-term rewards and help you earn passive income. Therefore, we encourage everyone to consider investment as a strategy for financial growth, regardless of age and background.

Pensions, for example, are one of the best investments you can make for your future older self. Your pension plan ensures you have something to fall back on when you're no longer actively in the workforce.

There is a pension plan for you, whether you're an entrepreneur, freelancer, or 9-5 employee. If you need help choosing and setting up a pension account, contact the Oak Pensions team of pensions professionals to get started right away.

Check in Regularly

Cleaning up your finances isn’t a one-time event, and like we mentioned before, everyone should have periodic overhauls. If it helps, you can make it a monthly or quarterly date with your finances. The more often you do it, the more results you'll record, and soon, it becomes a habit rather than a hassle. 

Conclusion 

Finances can be relatively volatile, dancing in tune with your actions and inactions, as the case may be. It is crucial to stay ahead of how your finances react to life’s events. If you’ve never had an overhaul, this article is your cue to get started. 

And if you’ve not been consistent with your financial cleanups, you should consider making it into a habit. With these strategies, you can aim to reach that financial independence we all yearn for.