The New Year has started, and it always comes with new year resolutions and plans. But what are your financial New Year resolutions? What are you going to do for yourself this year to set yourself up financially?
This is a great time to invest in yourself and your financial future, by spending time on a personal financial day. This is where you have a good look at what your financial position is at that moment and then decide what you want to have by the end of the year. Some examples of financial resolutions can be, paying off a debt, saving towards retirement or even setting up a will. It is also a good time of the year to have an overview of what your financial situation is and what areas you need to focus on for the year ahead. To help you plan for this journey, we have put together a checklist of the items you need to consider.
Budget or Spending Plan
A budget is basically a plan for how you are going to spend your money each month. A budget will help you keep track of your expenses and where your money is going. Keeping track of your spending will also show you where there is unconscious spending, or "money leak" of small amounts that add up to large amounts. Think to the daily coffee or take away you buy e.g., R100 twice a week quickly adds up to R800 per month.
Debt and Credit Status
Make a list of all the credit that you have, from the home loan to short-term debt, even including the small amounts you owe to family and friends, if applicable. There are two ways to pay off credit; you can either prioritise paying off the credit with the smallest outstanding balance first or the credit with the highest interest rate first. Each method has its advantages. Another option is that you consider credit consolidation, which will free up some cash, the trick is to use that freed up cash to pay off the debt sooner. However, the idea is to get a full view of what your credit position and what steps you can take to be credit free. In the long run, adding a small amount extra to paying off your credit means you pay it off faster while saving on interest over the credit term.
The guideline here is to have between 1 and 3 months' worth of income immediately available as emergency savings. This is money to be used in an emergency, such as a burst geyser or unexpected medical expense. Put a plan in place to build up your emergency savings for the year ahead. Adding small amounts into a savings account each month will go a long way, so R200 a month is R2400 per year. The best tip is to automate your savings every month, so as soon as your income is deposited, that money is transferred into a savings account.
Under this heading, make sure that you have the right short-term insurance in place to cover your car, home, and home contents. Check what you are paying for and if you are covered correctly in the event of an accident or any other event. Also check your long-term insurance or life cover, to make sure that it is sufficient. This is especially important if there has been a major life event in the last year, such as marriage or a new child.
It is also a good time to re-assess what your retirement goals are and if you are tracking towards those goals. Even adding a small amount to retirement provisions at this stage will have a substantial impact in the long run, think for example the cash that you freed up from paying off debt sooner. Getting financial advice on how much you should be saving towards retirement is essential.
A will is a document that needs to be checked on a regular basis to make sure that it reflects your true wishes, in the event that you pass away. This is especially important if there has been a major life change or event, such as a marriage or a new child.
These are just some of the steps that you can take to set yourself up for the year and ensure that your financial goals are met along with your other New Year resolutions. While finance may seem daunting and complex, set a goal and then break it down into small manageable steps as mentioned above.