The Dos and Don’ts of Financial Planning in the New Year
It’s the start of a brand new year, and hopefully a more peaceful and calm one than the madness that was 2016.
We’ll never be able to foresee what is to come with the economy, politics, global warming, or even what our bosses will think of us this year.
But when it comes to personal finance, a little planning goes a long way in helping us stay sane and secured.
Why? Because chances are, you won’t get to discover this year that you have won the lottery, your debts don’t repay themselves, and there is no hidden stash of money under your pillow.
Here are some simple Do’s and Don’ts of financial planning for the year to get you starting right.
1. Do review your outstanding debt
Starting the year on a good note means knowing exactly where you stand with debt and most importantly, how you can reduce your overall debt. The easiest debt to clear, and one that you really should, is the credit card debt.
Interest rates on credit card debt are probably the highest and any amount that you owe will very quickly snowball into an unmanageable sum. Find out if you can reduce that by debt consolidation or balance transfer.
For loans that you can’t repay anytime soon, ensure that you’re up to date with the prevailing loan packages and refinance to the most financially sound option available.
It could have been ages since you last looked at home loans and you may not even be aware that Fixed Deposit home loan schemes exist. In this case, speak to a loans consultant to review your options and you could save yourself a significant chunk of money.
2. Do think through your investment portfolio
Your investment strategy, if you have one, is something that needs regular review. As politics and the world economy become more volatile and unpredictable, your investment portfolio that made perfect sense three years or even a year ago, may be not be the wisest portfolio to have now.
Reviewing your investment portfolio isn’t just about following the economy and going after what’s hot at the moment, but also a good time to think through your priorities and investment needs.
You may have had a good risk appetite in the previous years, but your lifestyle and financial needs may have changed and you’d now rather have a portfolio that is lower in risk and perhaps more diversified.
3. Ensure you and your family are sufficiently covered
Have you always shrugged off the thought of buying insurance policies for yourself and your family? You may not need everything, but make sure that the policy that you signed up for does indeed provide sufficient coverage to tide you over in times of sickness and unexpected accidents.
Remember that in terms of health, now is always the best time to get insurance as it’d be very complicated and expensive to get coverage if you were to ever develop a chronic illness in later years.
Beyond health, think about whether you want or need insurance for your home. Some homeowners think that the mandatory HDB home insurance is good enough, only to find out that it doesn’t actually cover the loss and damage of your possessions within the home.
4. Set specific and realistic savings and debt repayment goals
Being debt-free and having a healthy amount of savings are some of the major milestones towards true financial freedom.
Debt doesn’t repay itself no matter how long you leave it, and it’ll only affect your credit score, hindering you from taking on any other financial commitments if you want to.
This new year, choose a debt that’s the easiest and most realistic to pay off, and set aside a monthly budget from your income to pay that off. Alternatively, you could also choose the debt that has the highest interest rate.
Also, set specific savings goals that you can break down into monthly targets. Base your savings goal on how much you actually earn per month, not how much you imagine would be a good number. Setting unrealistic goals will only add unnecessary pressures that don’t add any value to your financial game plan.
A monthly savings target as opposed to a yearly one will also help you to keep an eye on you tendencies to bust your monthly expenditure.
5. Don’t ignore the red flags and brush them aside
Don’t like what you see in your personal annual review? You might be familiar with that feeling of discomfort when you find out that you’re in more debt than you realize, or that your savings hasn’t grown much all these years.
If you have a habit of brushing the red flags aside, make this the year where you actually buckle down and come up with a game plan to turn things around.
6. Don’t keep your financial worries all to yourself.
Just because it’s your personal financial situation doesn’t mean that you have to struggle through your problems alone. Share your worries with your trusted family members and friends.
You may be surprised that at least one of them have walked on a similar path and have some good practical advice to share. Not only that, the moral support and understanding, especially from family, can go a long way in motivating you towards achieving a healthier financial outlook.
All the very best to the New Year!