2021 was a great year indeed. Amidst the pandemic and its sequelae, many people have expressed how much more the events of 2021 exceeded their expectations.
Financial performance remains one of the best indicators of success, such that when a person says they had a great year, more than 60% of this success can be ascribed to how good they perform financially in that year.
After stressing the importance of financial performance and as a consequence, financial management, it is important to state that financial excellence cannot be arrived at without a thorough knowledge and utilization of some financial tools. Without further ado, I will be taking you through 5 financial tools you need to adopt this new year and beyond to enhance your financial performance and help you build wealth.
A budget is a financial tool that is used to make an estimate of the expenditures for a set period of time against the available assets, money or expected income for the financial year. It is a very important tool because it helps you to rationally plan your expenses while considering your capacity to spend.
This financial tool is also very important because it helps you to allocate money to different aspects of your financial life and business in order of priority and in order of financial demand. This means areas that might need a higher proportion of your money and assets will receive a more sizeable allocation than areas that require less money.
The rational nature of budgeting makes it possible for you to determine how much each aspect of your financial life and business would require. Thus, the knowledge of budgeting, though might not come easily at first, is a special financial skill you must develop in this new year.
A cash book is a recording of all business transactions in monetary terms for a given accounting period of time. It involves the accounting of incomes or credits and expenditures or debits into and out of the business which is recorded in chronological order. The cash book is regarded as a subsidiary book to the general ledger which is a financial book.
General ledger transactions are a summary of transactions made as journal entries to sub-ledger accounts such as the cash book. The general ledger records all transactions already recorded in the subsidiary books in a manner that makes them easier to understand, compare and detect errors in reporting with the aim of correcting them.
The primary aim of the cash book is to manage cash efficiently and can be extremely useful to your business if you have any. Even though this financial tool is primarily useful for business transactions, I included it because I anticipate that you will establish your business this new year if you do not already have one.
3. Expenditure tracker
Have you ever lost track of your expenses before? You had some money on you, bought a couple of things by the way and you just can't explain how the entire money disappeared. Being able to manage your expenses is paramount to success in your financial management.
Tracking expenditure is often accounted for by several accounting tools like the cash book but expenditure tracking in this regard refers to your conscious efforts at recording your expenditure for each day and balancing it against what you proposed to spend for that day from your budget.
Good knowledge of your previous day spendings can equip you with the knowledge about what you need to control, how much more disciplined you need to be and how to plan your spendings for the present day. 2021 taught me the importance of this financial tool and I am glad to point its importance to you in this post.
4. Inventory Keeping
An inventory is a complete list of assets owned by a company including raw materials and those that are out for sale. It also includes goods in progress that have not been completed yet.
Managing and controlling your inventory is helpful in tracking your asset flow, either in or out, especially because some of your assets in the form of finished goods can be sold to produce cash flow into the business.
The fifth and last point I am going to share with you here is not exactly a financial tool. It's more like financial advice. This is one more financial skill I started paying more serious attention to in the outgoing 2021 and it is what I refer to as "cross-investment".
What is cross-investment and how is it financial advice?
Cross-investment is the process and method of establishing assets in multifaceted industries. It is the process of making investments in different industries as a process of expansion.
When you invest in a business, fashion business, for example, you build your profits and re-invest into that business to grow it. At some point, instead of re-investing the profits into your existing business, you can invest parts of it into a new business line, for example, a technology business. This is what I call "cross-investment".
Best Part of These Financial Tools For 2022
You think I was going to end it there, do you? The world is fast advancing and we have to catch up with its pace. In doing so, you need to know that many of these financial tools already have mobile companion apps that can help you achieve these on the go.
For budgeting, cash book, expenditure tracking, and inventory keeping, there are budgeting apps, cash book apps, expenditure tracking apps and inventory keeping apps available for free or paid download in the mobile app stores.
For example, the Kippa simple bookkeeping app is available on Playstore and Apple store as a simple cashbook app for your day-to-day use.
A variety of budgeting apps, expenditure tracking apps and inventory control apps are available for download in the app stores. Some of them are free while others are paid apps. You should go ahead to download and start using the financial tools app that you prefer and can afford.
You can also adopt the physical 'paper' accounting methods that make use of pen and paper recording of financial transactions as cashbook, inventory, budget, expenditure tracking, etc
These financial tools are listed and described in this post because they hold the key to unlocking your financial growth through this financial year. 2022 is great already, but you must take action to secure your finances and build wealth that truly lasts. We will meet somewhere in 2022 with wide smiles following your huge experience of financial success. See you there.