A SWOT analysis is a method used to examine current performance and form better strategies moving forward. It’s often used in a professional setting to evaluate a business model or individual performance.
But a SWOT analysis is a tool that has wide applications — including personal money management.
Named for its focus on strengths, weaknesses, opportunities, and threats, the SWOT method can help you better understand your current financial situation. Even better, you can use your insights to form smart money strategies that will protect and grow your wealth.
How is a SWOT analysis used for personal finance?
The first two words in the acronym, strengths and weaknesses, are generally grouped together as positive and negative internal factors that affect a situation — in this case, your personal money management. These come from you, and are things you can directly control.
Opportunities and threats are the positive and negative external possibilities that could affect your finances. These are often outside of your control, but identifying them can help you match your course of action.
A SWOT analysis helps you understand how your personal choices and behaviors combine with external forces to either hurt or help your finances. Analyzing your money this way will give you a holistic view of your current net worth, and a 360-degree view on what will grow — or shrink — that wealth.
How to use the SWOT method
Using this strategy is helpful to honestly assess your current net worth and money management. You’ll get an idea of where you are now and what’s coming up in the near future.
First, create a SWOT analysis template to jot down your notes. Grab a blank piece of paper and create two columns. Label one “Internal” and the other “External.” In the Internal column, you’ll list your strengths and weakness. In the External column, add your opportunities and threats.
Here are some things to consider as you work through your SWOT analysis template.
Money strengths and weaknesses
Your financial strengths are the things you’re already doing well, but can keep building on to do even better. An honest look at your money weaknesses can help you mitigate problems they create and, hopefully, prevent them in the future.
Some questions to consider when analyzing your personal financial strengths and weaknesses include:
- Income: Do you have a high income relative to your living costs? What is your income potential? Does your income vary month-to-month or is it reliable?
- Financial resources: What are the assets that you have on-hand? How are they allocated to different financial goals?
- Liabilities or debts: What debts do you have? What is a drain on your finances?
- Money habits: What financial habits do you repeat every month? Which are healthy and which are harmful?
- Financial knowledge: Do you know enough about money to confidently make decisions? What have you learned a lot about recently? What are financial topics you don’t know much about?
- Money attitudes or beliefs: How do you feel about your finances? What stories do you tell yourself about your money? How are past experiences affecting your current financial approach?
As you walk through these questions, think about any external feedback you’ve received about your personal money management. For example, maybe people comment on your spending habits, either pointing out that you shop a lot or noticing your frugal nature.
This can inform your analysis by helping you notice things about your personal money management that you otherwise wouldn’t.
Financial opportunities and threats
Next, you’ll want to identify your financial opportunities and threats. Finding threats will help you mitigate financial risk with responsible actions. Seeing financial opportunities can help you choose the right time to make smart financial moves.
Consider the following areas as you think through your financial opportunities and threats:
- Income: Is your job stable or at risk? Can you get a raise in the coming year? Are there opportunities to get a side hustle or otherwise diversify your income?
- Living costs and expenses: Are your costs of living increasing or decreasing? What new costs are you facing that you haven’t had in the past?
- Tools: What financial tools are available to make money management easier? What resources can you use to improve your financial knowledge?
- Financial products: Are your financial products worth the cost? Are there products you could use to improve your finances, like refinancing or investments? Can you access or qualify for these products?
- Economy: How is the economy expected to perform in the next year or more? How will this affect costs of borrowing? Your investments? Prices of major purchases?
Using a SWOT analysis to grow your wealth
Once you’ve gone through the process of analyzing your finances with the SWOT method, you probably have some general ideas to implement that could build your wealth.
However, it can be helpful to revisit your list of strengths, weaknesses, opportunities, and threats and list some specific action items that would help you capitalize on a positive or offset a negative.
For strengths, look for ways to do more with your money. You could use your high cash flow to work toward financial goals, or devote more time to a side hustle to generate even more income.
With weaknesses, consider how you can stop these from dragging your finances down. Make a plan to tackle weaknesses like high debts or frivolous spending that are holding you back from your goals.
When looking at opportunities, think of ways you can position yourself to take advantage of these in the next year. Consider how opportunities can play to your strengths or be used to overcome weaknesses.
Likewise, strengths can be used to avoid threats — and you’ll want to make sure you’re aware of threats that could be worsened by your financial weaknesses.
When you want to do better with your money but can’t seem to figure out how to do it or where to start, a SWOT analysis can be extremely helpful. The approach can help you be more objective about your finances, get past your emotions around money, and logically sort through positives and negatives.
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