Start 2022 money-wise. The new year always comes with resolutions and plans.
But, have you have made financial resolutions? Ester Ochse, Product Head at FNB Money Management, thinks it’s better to take a personal finance day before setting financial New Year’s resolutions.
What are you going to do for yourself this year to set yourself up financially?
This is probably the best time in the year to invest in yourself and your financial future by taking a personal finance day.
Take a good look at your current financial position and then decide what you want to have by the end of the year.
Some examples of financial resolutions can be paying off debt, saving towards retirement, or setting up a will.
Ochse says it is also a good time of the year to confront financial fears and decide what areas you need to focus on for the year ahead.
To help you plan for this journey, we have put together a helpful checklist for your consideration.
Budget or spending plan
A budget is a plan for how you are going to spend your money each month.
A budget will help you keep track of your expenses and provide a picture of where your money is going.
A spending plan will also show you unconscious spending, or “money leaks” of small amounts that eventually add up to significant amounts.
Debt and credit status
Make a list of all the credit that you have, from the home loan to short-term debt.
Include 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 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 complete view of your credit position and take steps to be credit free.
It’s better to pay a little more on top of your monthly installment; that way, you pay it off faster while saving on interest over the credit term.
Ochse recommends having between one and three 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.
A financial goal for 2022 could be to put a plan in place to build up your emergency savings for the year ahead.
Don’t underestimate putting away small amounts of money at a time; even R200 each month will go a long way.
The best way is to automate your savings every month to transfer money into a savings account as soon as your income is deposited.
You might also want to check what interest-bearing facilities your bank has to offer instead of depositing money into a straightforward savings account – where you are charged a monthly fee.
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 occasion.
Also, ensure that your long-term insurance or life cover payout will be sufficient. This is especially important if there has been a significant life event in the last year, such as marriage or a new child.
Last year, financial services planning company Alexander Forbes warned that millennials don’t have enough to save up for retirement.
This is also a good time to reassess your retirement goals 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.
A will is a document that needs to be checked regularly to make sure that it reflects your true wishes in the event that you pass away.
This is important if there has been a significant life change or events, such as a marriage/divorce 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’s resolutions.
While finance may seem daunting and complex, setting a goal and breaking it down into small manageable steps can help you improve your financial health.
(Compiled by Narissa Subramoney)