Another year has passed and the countdown to a New Year has started!
As always, many will think about the year that has passed; and wonder if it could have been better. Don’t we all start by looking at the past and promising ourselves that we will learn from it; and do things differently. Promises made to ourselves to put our finances in order; and then forgotten.
Or can 2011 be different?
Can we start the New Year with a resolution that can be ‘implemented’ and help us achieve our targets.
Here are some simple i-save pointers to help you make 2011 a successful financial year!
Learn from the past
It’s a good place to start. Review the year and do a quick check on your finances – what were your earnings, where did you spend it, did you meet your savings plans, what are your debts.
Assess your needs
Do a simple check to assess your needs – both for expenses to maintain a healthy lifestyle; as well as savings – you may have long term goals e.g. having a retirement fund of a certain amount; buying a home; providing for your child, etc.
Use available tools and calculators to assess how much you will need to save to achieve these goals.
Build a Plan
Now that you have reviewed your budget and assessed your needs, build a plan to achieve your goals. Focus on your goals – and how you will achieve these.
Here are some pointers to help you build an achievable plan.
- Set achievable goals
If you set too ambitious a target the risk of not achieving is high – leading to many people being disappointed and giving up their goals altogether. Don’t make that mistake. In order to be successful, your goals should be in small incremental steps so that you can achieve them. Achieving your goals will give you the confidence to do more and set bigger and more ambitious targets.
- Fix your Goals
Now that you have an idea of what you need to do; fix and work on your goals.
These could be some or all of:
- A better control over your finances
Not tracking your monthly expenses or having a control over your spending will lead to a failure in achieving your financial goals. Having reviewed your past years income and expenses, set yourself some simple goals to track and control your expenses – a simple budget. Control your expenses and review them at least on a monthly basis to make sure that you have achieved your target.
Put your target and actual expenses under various “heads” of expenses and savings; and monitor using an excel or even on paper.
- Increase your savings or investments
Regular saving and investment is critical to building wealth. Controlling your expenses so that you have some balance left for investment is a starting point. Set a goal for your monthly savings and make sure you monitor this. Make investments regularly – you will the benefit of compounding on your savings and see your savings multiply. It’s also important that you plan for your “big spends” – try and make sure that this goes into your annual plan so you can save for it – and not have to take on expensive debt for your major purchases.
Look for the options available that can simplify or automate your savings – for example – a monthly sweep from your savings account to a fixed deposit; or a Mutual Fund SIP. Automating will help you maintain the monthly saving discipline.
- Repay your Debts
Repaying your debts and becoming debt free is a very important step in becoming wealthy. Look at your outstanding debt – is there an outstanding on your credit card; personal loans; home loans.
The interest payments on loans will reduce your earnings from your savings – and may or may not impact your tax position e.g. interest payments on credit card or personals loans may not be written off against tax; whilst you will be liable to pay tax on your interest income.
Arrange your debt liabilities by interest cost (credit card outstandings are the most expensive) and make a plan to repay these over time. Set a goal for the year; and use your surplus cash to repay loans starting with the most expensive loans first. Most lenders will allow you to make partial prepayments without incurring any additional fees.
Reducing your debts will reduce your interest payments and free up cash used for repayments to add to your wealth.
- Plan for Retirement
Set a goal for your retirement savings. This should be a goal in itself and not linked to your other savings or investment goals. You may have other financial needs such as buying a home or your child’s education that can eat into your savings. Your retirement fund is the corpus you will need to make sure that your retirement years are comfortable.
If your focus is on getting out of debt; invest any balance remaining after repaying your loans towards retirement savings.
Look at the options available for you – Employees Provident Fund, Public Provident Fund, National Pension Scheme or Insurance Pension Plans. Take financial advice to see which options work best for you keeping in mind your risk profile and period to retirement.
- Review Regularly
Remember to review your progress against your plan regularly. This will help you adjust your expenses or your goals to make sure you achieve your targets. Be realistic and work on your plan and goals regularly – and you will certainly achieve success.
Here’s wishing you all a successful 2011.