It’s true that computers, fingerprint login on apps, and extra security services provided by banks and financial institutions have made auditing and tracking our financial transactions easier. But this shouldn’t make us lazy and think that everything is safe and secure. If anything it should make us more vigilant because hackers are motivated and are trying even harder in breaching systems. Look what happened to Equifax, whom among things had hundreds of thousands of private identifiable information stolen.
I mentioned in a previous post about a fraudulent charge on one of my accounts related to a Sony Play Station game purchase I didn’t make. The amount wasn’t a whole lot in the grand scheme of things, but if I didn’t have my auditor hat on I may not have caught it. Yes audit is a scary word, if someone else is coming and auditing you. But it can be very helpful and eye-opening if you embrace and apply it to your own financial life in a proactive fashion.
Audit Your Income
Do you check your paycheck every two weeks to make sure the amount deposited is accurate? Or if you’re a contractor, do you check your payment VS the actual time and effort you have put into you work? We may only check if the amount is less than what we usually receive. But how do we know what we usually receive is accurate in the first place. I remember a couple of years ago; I went line by line on my paystub to re-calculate everything. I must have sent my HR representative 5 emails in one day while doing this exercise. In the end the gross pay and all the deductions and resulting net pay were accurate and it was satisfying.
A lot of people may think that the organization I work for should be doing this anyway, but they can make a mistake. Per Paycheck City, “if you are transferred to a different state for your job, and your Human Resources department does not notify your Payroll department quickly enough about your transfer, your taxes may be withheld incorrectly. “ They also mention life events can change your pay too and these should be verified for accuracy as well. Some of these events include having a baby, getting married, or getting a divorce.
Finally, in special situations where you need to take extended leave at a certain percentage of income or are leaving the company and are being paid out your accrued vacation time (if your company’s policy allows that), then please make sure the amount they have paid is accurate. This is simply, based on the number of days or hours you are due times your hourly rate or possibly an adjusted rate.
Audit You Expenses
Have you ever used a company credit card? Does your company have a procurement credit cards which are audited? Depending on the approach, a credit card audit may include the following:
- Is the expense for a legitimate business purpose
- Is the expense allowable (for example some unallowable expenses include alcohol, casinos, beauty supplies, and sporting events).
- For large purchases, does the item exist in the proper location and being used for its intended purpose?
So maybe we can apply some of these rules for our own expenses. Is the purpose allowable based on our lifestyle? If not, why did we buy it and do we need to continue buying it in the future? Regarding the third bullet point, is the expense providing a benefit for us in a manner that was intended? If not, what action can we take to correct this?
If something is not fulfilling its intended purpose, maybe its usage can be repurposed to create value. For example, years ago I bought a L-shaped desk set. The set came with the desk, a bookshelf, and a printer table because I have an all-in-one printer. So the printer table had this mini table desk like thing-a-ma-jingi. It was for charging devices and hiding wires. For a few years it was just collecting dust on a shelf under my printer table and one day I saw a similar thing-a-ma-jig while flipping through an Ikea magazine. So I was like YES, I can use this in my kitchen to charge our phones and my son’s tablet…….for its intended purpose! Check it out:
But going back to actually auditing your expenses, this can be achieved first through budgeting/tracking your expenses and then analyzing them. Once you get in the mode of doing this, psychologically when you do decide to spend, there’s a better chance you’ll remember your tracking tool(s) and determine if the expense lines up with it. Finally Credit.com offers additional tips to audit personal expenses.
Audit Your Investments
The more time and money you’ve put in the market, the more it has hopefully paid off J But with that comes more risk simply because you may have more to lose. So your investments actually deserve to be audited by you to make sure they are meeting your investment goals. Maybe your goal is to achieve $1,000 in dividends by the end of the year. Maybe your goal is to be 70% in stocks, 20% in bonds and 10% in cash. Maybe from your 70% allocation in stocks, your goal is to have 40% in small-cap because perhaps you have the risk appetite.
It’s important to go into your brokerage account and run tests for yourself. This can include running a transaction report to make sure dividends are paid accurately, investment allocations are the way you’d designed, if you are in a reinvestment program, dividends are being funneled into that program and purchases are being made at regular intervals.
So much comfort and benefit can be derived from being your own auditor. And as a result, you can ensure your income is accurate, reduce or maybe even eliminate some expenses, optimize how your investments are working for you.
How do you audit your finances? What are the biggest areas of risk in your own personal finance universe?
I use Personal Capital because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!