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Financial planning analysis
How to check your financial health in your financial statements

Financial planning analysis is essential once you have finished your financial statements. Only after analyzing your situation you can take action. That is why it is very important to know the technical aspects of accounting to a certain extent.

An accountant or a bookkeeper will help you out with general stuff like getting your financial statements and some basic financial planning analysis. However the decisions that you need to arrive at is still your responsibility and even to know what your status is based on your accountant’s findings you have to have the knowledge of accounts.

What you should check in your financial statements?

These are the main questions you should answer with your financial statements. The process to respond to each question is the financial planning analysis itself:

Balance sheet:

  • Do you have a positive or negative net worth? What could you do to improve this situation?
  • Your assets are yielding you money or you’re expending money to maintain these assets?
  • What are the risks that can affect the value, property or possession of your assets?
  • Can you buy or you have enough insurance coverage for the risks identified?
  • If you have investments. Do you understand how works the investment vehicles that you have?
  • Your investments are according to your risk profile?
  • Do you know what a risk profile is?
  • Do you have an emergency, education or other funds?
  • How much in percentage represents your liabilities from your assets?
  • Do you know if you’re paying a reasonable interest rate in your loans and liabilities or not?
  • If you compare your balance sheet month by month, what grows faster? Your assets or your liabilities?

Budget and Income and expenses statement:

  • What kind of income do you earn? Salary, fees, commissions, rent, dividends, etc.
  • These income streams depend mainly on your efforts, the financial situation of your employer or other factors that you cannot control?
  • Do you have a positive or negative net result each month?
  • If you have a negative net result, how are you covering it?
  • Your contributions to Social security are being registered correctly? Do you control your balance frequently?
  • How much represents your financial charges of your income? This relationship is growing or decreasing? In other words: are you working for the bank or other creditors or for you?
  • If you compare your income and expenses statement with your budget, do you have significant differences? Can you explain the differences? Were caused for an unforeseeable event, something that you forgot to consider or simply a voluntary expense.
  • If you compare your expenses’ categories and subcategories month by month, are your expenses increasing, maintaining or decreasing?
  • Do you know how the inflation is affecting your income?
  • Accordingly to your income and expenses, will you be able to achieve your goals in the time that you’ve established?
  • What adjustments do you need to do to your objectives?

If you answer the above questions, be sure that you’ll realize your truly financial health, your weaknesses and the ideas on how to manage them will arise and you’ll be more confident knowing where (in terms of finances) are you today.

All of us need to do some amount of book keeping, accounting and financial planning analysis. Even if you have someone else to do your finances it is still better to know these things for being prepared in life.

If you have some questions please contact us.

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