Senate scandal highlights importance of auditing personal finances

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Canada’s embarrassing mess in the Senate can prove to be a good learning experience on how we manage our own personal finances. The single most important word to focus on is “audit.”

The Senate needs an audit and in the broader sense many of us need an audit as well. That should be our lesson when watching as this political fiasco unfolds.

Canadians have debated the usefulness of the senate for years. Sir John A. Macdonald, Canada’s first prime minister, said the Senate was to be a place of sober second thought so that legislation would receive proper, careful consideration before finally becoming law.

The Senate appears to have become an unruly and unmanaged group with some individual Senators doing whatever they want. The current problem revolves around three who have supposedly made living expense claims to their benefit based on where they stated they lived instead of where they actually lived.

Senator Mike Duffy voluntarily repaid the $90,000 of unwarranted expenses he claimed and was paid to him. The Prime Minister’s Chief of Staff apparently gave Mr. Duffy the $90,000 and after that was publicized, the Chief of Staff resigned.

Now Mr. Duffy’s expense issues have been turned over to the RCMP for an investigation and his expense claims are being audited.

An audit is an official inspection of an individual’s or organization’s accounts; typically by an independent body. The purpose is to confirm truth or identify non-truth.

Sometimes where there is smoke there is fire. There appears to be much wrong with the management and control of the Senate. My preference is to audit every member of the Senate.

The Senate and all parts of the government work for us and we have a right to see how effectively our tax dollars are being spent.

The value of an audit is to identify past mistakes and take corrective action. This valuable audit process is something we all should consider. We should examine what we are doing with our personal finances and depending on the findings, take our own corrective action.

Examine your investment performance, diversification, tax planning strategies and investment fees. Perhaps you should expand the audit to include your previous year’s income tax filing to see what could be done differently to lower your taxes. Maybe an insurance audit is needed to see if your existing insurance still is appropriate.

Avoiding negative feedback is a typical characteristic in human nature. If we audit ourselves there will be moments when our mistakes make us uncomfortable. That may be painful although in the overall context it is better to have a little emotional discomfort now as opposed to the greater physical and emotional effects of a catastrophe later in life.

Outliving your capital is by far the most significant fear for baby boomers and older generations. Recognizing that you are not currently on track for retirement may be uncomfortable, but running out of money when you have 10 years of life expectancy remaining would be panic inducing.

Complete a personal audit of your retirement cash flow to forecast if you will outlive your capital. Assuming your capital is gone during your 70’s and you anticipate living a long life; you will live your next 10 or 20 years financially dependent upon others.

This audit will cause you grief, concern, worries and many sleepless nights. Now compare that discomfort in your 70’s to the later years in life when you realize you are broke but with plenty of life to live.

There is less short-term pain with the benefit of anticipating your financial predicament now. You can correct your situation and hopefully avoid the mistake of outliving your capital. Maybe it is as simple as saving a little more, spending a little less or improving your investment returns.

If you want to avoid financial problems identify those problems now. Complete your personal audit on all aspects of your financial life and take whatever corrective measures necessary.