One of the best ways to make decisions around anything is to do a SWOT analysis.
This is a simple but useful framework developed in the 1960’s by the Stanford Research Institute for companies to analyse the things they can control, their strengths and weakness and those outside of their control, the opportunities and threats they may be exposed to, with the objective of helping them build on what they do well and addressing their weaknesses so they can take advantage of its opportunities while minimising their risks.
Seeing as you are effectively running your own “company”, YOU LTD, a basic SWOT analysis on your financial situation can similarly give you a clear understanding of how you can use your strengths and the available opportunities to mitigate your weaknesses and the potential risks.
It’s the first step to becoming financially Anti-Fragile. This is one of my favourite concepts and my “word” for this year as it means being able to be flexible and adaptable in the face of any challenge.
The purpose of the financial SWOT analysis is to set yourself up for successfully achieving your goals.
Before you start this process get clear on what your goals are, this will give you a greater understanding when completing the matrix and much more meaningful actions to take away from the exercise.
On that note let’s dive into the analysis.
Identify what’s good about your financial situation. Financial strengths are those resources you can build on to get you closer to your financial goals.
For example, do you have a steady monthly income, have you built up a comfortable amount of savings or are in the process of doing that, have you set up a pension, do you have a good credit score, do you have a positive net worth (what you own exceeds what you owe) and bottom line do you have a good understanding of your financial situation.
These are the things that get in your way and make it difficult to reach your goals.
This might be the fact you are living paycheck to paycheck and have a spending problem and no budget, it might be debt, such as credit card balances you are still trying to pay off, car loans, student loans, a bad credit score, a salary below the industry standard and possibly the biggest hurdle, a lot of limiting money beliefs!
It’s important to get these all out there and clearly documented because this will uncover the most direct action steps you can take in moving towards your goals.
These are things you haven’t as yet exploited at all or haven’t maximised.
The thing to remember here is that there are always opportunities although they may not initially be totally evident and a little bit of out the box thinking may go a long way to uncovering them.
The more obvious opportunities include those that enable you to grow your income and may include side hustles, working towards a promotion, a future bonus, a new employment opportunity or could simply be the opportunity to pay off debt at an advantageous interest rate.
The purpose of this analysis is for you to assess how well placed you are to take advantage of them; have you updated your CV, are you monitoring your credit score to keep it at a healthy level, are you building and nurturing your network of contacts, do you provide maximum value in everything you do.
As the saying goes, “Success is where preparation meets opportunity”, identify potential sources of opportunities and take action to be prepared for when they come.
Ignorance is never bliss especially when something comes out of nowhere and kicks your butt.
While we are never going to know exactly what might come next let along have the ability to control anything about it, by approaching threats as a realistic optimist you can expect the worst while knowing you can deal with it.
This means taking actions to mitigate these future threats, known and unknown.
Threats can come in the way of large expenditure you hadn’t planned for, such as medical costs and uninsured damage or losses to events or circumstances that negatively impact your income; a recession, a potential redundancy, soaring inflation and rising interest rates or having to renew your property lease at a higher cost.
While the financial SWOT analysis is a hugely useful exercise just by doing it, the real value lies in actually taking action to leverage the strengths and opportunities you uncovered while either minimising the threats and weaknesses or turning them into opportunities.
Ready to do your own financial swot analysis, start by doing the financial quiz to see where you are at.