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MUHIA: Why you should keep financial records this year

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Review your financial performance on regular basis. FILE PHOTO | NMG 

The festive season is always characterised by heavy spending, which always leaves many people grappling with financial constraints in January.

To those who save throughout the year or earn bonus yearly, accountability of how the cash is spent is always a challenge. Not many people account for their money, be it the regular income or once off earnings.

As we speak, one of the most important resources in the world is data. No wonder giants such as Google and Facebook are always involved in personal data related controversies. Everyone is interested in your data. Financial records provide very important data that you can use for your own gain by understanding personal financial behaviour. With simple data analysis, one can understand where the money is spent which is an important step in managing finances.

Have you ever wondered how you spent certain amounts of money? If you know, for example, how much you spend on impulse buying, you could probably instil financial discipline and put the money into proper use like saving. Suppose you know all your bank accounts charges, as well as credit card and mobile phone cash transfer charges? You could be surprised at how much such small amount adds up to.

What about that loan? Do you know what is the interest component in the repayment amounts? Everyone should have this type of information, which is very important in a financial decision and whose impact on the overall financial status cannot be ignored.

As the adage goes, failing to plan is planning to fail. How else can you plan without information? Record keeping plays a vital role in financial planning. When you have the actual record of your income and expenditures, then you can plan the future. It is very easy to prepare a budget when you know how you spend every coin you make than when you have no idea how you spend your money.

Records also help in keeping you grounded and well organised in wealth creation. It helps one to keep a financial health checklist in terms of assets and liabilities. It offers guidance on how much your net worth is. Net worth is assets minus liabilities. Assets are your possessions things like properties, motor vehicles, household items, cash at bank and stocks, among others. Liabilities include borrowings from banks, saccos, friends and families. A personal net worth tells the individual how rich they are and which direction they are taking financially.

To the small business owners, record keeping will help in distinguishing between personal bills and business spending. This will protect the mixing of personal finances with business finances. Besides this, entrepreneurs will derive all the other benefits discussed here and much more if the practice is emulated in running a business.

Record keeping is as easy as ABC. Start with a net worth statement. List down all your possessions with the estimated current market value against all your liabilities. The total assets minus liabilities will give you net worth.

Secondly, open a file where you can keep all your transactional records such as bank statements, bill, and receipts of various spending.

Open a journal and record everyday transactions and ensure that you can account for every penny that leaves your bank account.

Finally, review your financial performance on regular basis. You will be surprised at how much you will learn about your finances.

ROBERT MUHIA is a financial professional.

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