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Home / Managing Your Money

Be your own chief financial officer

 Mbithe Muema, the CEO of Infallible Group (Courtesy)

Mbithe Muema, 38, is the CEO of Infallible Group, a financial consulting firm

A financial health check is a review of one’s financial status and well-being. In other words, it is a check on how one looks like on paper when it comes to their personal finances. 

It entails a review of one’s personal net worth and personal cash flows to see where they stand from a financial perspective.

As a result, one is able to identify gaps and take action towards a clearly defined financial goal.  This is particularly important currently because Covid-19 has brought on the risk of loss of jobs and regular income.

With this kind of volatility, the best action is to check one’s personal finances and evaluate what they need to do to ride the storm.

First assess your assets — what you own, and compare this to your liabilities — what you owe.

Take away the value of your liabilities from the value of your assets. That is your positive net worth. This figure can either be positive (meaning assets are more than liabilities) or negative (meaning assets are less than liabilities).

That’s the starting point. After this then you would look at your personal cash flows and assess whether your source of income is safe, and secondly, whether you need to diversify your revenue sources.

The next consideration is around your expenses – check what’s necessary and what is not. This requires you to take a look at your budget.

Do a financial health check at least once a year. I recommend doing this at least every quarter as this gives you headroom to correct any mistakes earlier on rather than waiting for 12 months to adjust your financial decisions.

If you do not have one, start an emergency fund right away. This comes in handy when you lose your income.  Once that is done, keep setting aside the money to go into investments for your future self.

You are financially unhealthy if you are not keeping track of where your money comes from or where it goes.  When we talk about finances, we are talking about numbers, and so the best way to know if your numbers are good is to count them.

 You need to do a financial health check at least once a year (Courtesy)

Other indicators include spending more than you earn and if you are depending on debt to finance your consumption or regular expenses. A less common indicator would be having only one source of income. You need to diversify your income streams to grow your personal net worth and guard against any financial pitfalls.

A married couple shares more than just money. Thus if married, I would advise that you do the health check with your spouse. There is value in this as both parties then get to have a clear picture of how the combined family finances look.

This is the best picture as then the couple can start to amend their financial habits to working towards a shared financial goal.

Most of my clients who do this have benefited greatly from the transparency and accountability from their spouses, with some of them even planning annual getaways to have their annual financial health check while overlooking the sandy beach.

Interestingly, Covid-19 has actually made business easier to start. We now have direct access to local and global markets at our finger tips thanks to technology. Your network is your net worth – engage the people around you and find out what their needs are.

Figure out how you could fill that gap. The most important thing is to have a positive mind-set; look for opportunities around you and just start doing something. Make a difference for others and this will make a difference for you!

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