NEW YEAR, NEW FINANCES: SEVEN RESOLUTIONS TO TRANSFORM YOUR MONEY MANAGEMENT
As the new year looms on the horizon, many individuals find themselves contemplating resolutions aimed at enriching various aspects of their lives. Common aspirations include hitting the gym, adopting healthier eating habits, achieving work-related metrics, and, perhaps most crucially, putting their financial house in order.
The task of organizing one’s finances can be overwhelming – here are some practical New Year’s resolutions designed to pave the way for a more financially secure future.
- Calculate Your Net Worth
If you have not taken stock of your financial standing yet, the beginning of the new year presents an opportune moment to calculate your net worth. This essential step not only evaluates your financial health, but also serves as a foundation for setting and achieving your financial goals. The act of scrutinizing your assets and liabilities provides clarity on your current spending and saving habits, highlighting areas where adjustments may be necessary.
- Draw Up a Budget
While occasional indulgences are acceptable, not having a budget can be detrimental to your financial well-being. Tracking expenses and holding yourself accountable are pivotal steps in avoiding the trap of consistently spending as much as you earn. Here’s a three-step guide to crafting a manageable budget:
- Calculate your Net Monthly Income: After taxes and deductions.
- Identify Nondiscretionary Expenses: Such as housing, utilities, groceries, auto-related costs, and loan servicing.
- Separate Discretionary Expenses: Like dining out, vacations, entertainment, and subscriptions into another column.
The key is to ensure that your net income exceeds the combined total of nondiscretionary and discretionary expenses, allowing room for savings. Regularly review and update your budget to adapt to changing circumstances.
- Assess any Major Purchases before Acting
In a world where tempting deals abound, it’s crucial to resist impulsive buying decisions. Take a step back to evaluate the impact of a significant purchase on your budget and overall financial goals. High-pressure sales tactics may push you to act emotionally, leading to regret. Resist the urge to succumb to phrases like “this deal won’t last” and make decisions based on careful consideration.
- Utilize Tax-Advantaged Vehicles
Minimizing taxes is a common financial objective, yet many individuals engage in investment strategies that generate both income and capital gains taxes annually. For long-term financial goals, consider the benefits of compounding interest with tax-advantaged vehicles. Classic examples include retirement annuity accounts, and not participating in employer-sponsored plans can result in missed tax savings and compounding returns.
- Diversify
Portfolio diversification is easily achievable and cost-effective. While investing in individual stocks may be enjoyable, a globally diversified portfolio of various securities, tailored to your time horizon and risk tolerance, can better serve your financial goals. Talk to a reputable and experienced financial planner about your portfolio.
- Review Life Insurance and Disability Insurance Needs
As you progress through your career, your life insurance and disability insurance needs evolve. Reflect on the protection you require and compare it to your existing coverage through your employer’s benefits package. Assess whether you need more, or less life insurance and determine whether term or permanent life insurance is more suitable. Additionally, review your disability insurance coverage to ensure adequacy. Again, a specialist financial planner will provide good guidance.
- Invest according to your Financial Goals
Define what you desire in life, list goals in order of priority, and quantify them. For example:
- Eliminate credit card debt by 2027.
- Retire in 20 years on 80% of current income.
- Purchase a home in 5 years in X neighbourhood with a R2 million down payment.
To maintain financial resolutions, set realistic targets and remind yourself of the reasons behind each resolution when faced with temptation. Consider transferring money to a designated savings or investment account that is not easily accessible or automating a portion of your paycheque to be deposited directly into a savings account.
By implementing these resolutions, you can pave the way for a more secure and prosperous financial future. Remember, the key is consistency and a steadfast commitment to your financial well-being.
