Happy New Year everyone! As you think about 2018 and your goals for the New Year, consider putting together a plan to start the New Year off on the right financial foot at the top of your list. It’s well worth spending some time thinking about your money at the start of the year so you can achieve your goals as quickly as possible.
Here are our tips to help you make 2018 your best financial year ever:
Gather your data
Start the New Year by taking stock of all things financial in your life, your income and expenses, your assets, including your retirement accounts, and your liabilities, your insurance policies, your income tax returns, and your wills, trusts and other estate planning documents. Try to identify gaps in your financial plan. Examine, for instance, if you have enough life insurance in place should you pass away to keep your family’s standard of living when you’re not there anymore, or even worse, lose all their assets due to an insolvent estate. Insolvent estates are on the increase. An insolvent estate is an estate in bankruptcy. When the owner of the estate passed, they left behind a greater amount of debt than equity. This means the estate must be sold off in order to repay debts, but there may still be outstanding debts to pay. Depending on the structure of the debts, the inheritors of the estate may be asked to repay the loans.
Make sure you are looked after in the event of a dread disease or disability.
What would happen if you were sick for an extended period and you were unable to work? Would your company pay you for that period? Would you get laid-off your job? Employers aren’t obliged to pay you after you’ve used-up your sick leave days. You can use your normal leave days in case you get seriously ill as well, but those can run out pretty quickly if you’re booked off work for months at a time. Make sure you have sufficient income protection cover which could pay you up to 100% of your salary for up to 36 months for temporary illnesses or injuries. It’s very important to shop around for not only the most cost-effective cover, but the most appropriate cover for your needs as well. Not all insurance providers offer the same level of cover. Although your medical scheme can help take care of day-to-day medical expenses, the cost of coping with a severe illness can often leave a substantial shortfall, particularly in terms of long-term treatment and medication. It is this shortfall that a Dread Disease or Severe Illness Benefit is designed to take care of, providing a lump sum pay-out to look after any lifestyle adjustments that may be needed, cover the costs of ongoing medical care, and lessen the impact of any loss of income.
Set goals and objectives
Use the data you gathered to get a sense of where you are and where you want to be in one year and in subsequent years. A comfortable retirement or being debt free are fine goals, but you should also attach objectives to your goal. Put in writing, for example, that you want to accumulate R10 million in your RA over the next 20 years, or that you will pay a certain amount per month toward being debt free by December 2018, for instance. You especially want to categorise your goals and objectives by time lines so that you can measure and monitor your progress. You should also prioritise your goals and objectives. If you don’t know where you are going, any road will take you there. That’s somewhat true of your investment portfolio as well. You need a plan for retirement and your investments. Have a new needs analysis done by a professional. This plan will identify your objectives, establishes how much you will save toward your objective, how you will allocate your assets, establish when and how you will re-balance your portfolio to its target asset allocation, and the like. Think of it as a blueprint for your investments.
Plan for Retirement
Retirement is coming, and you should be preparing for it. Your retirement savings should be considered separately from your other savings goals. Your retirement savings are essential because it directly affects how comfortable you will be when you reach retirement. You may want to continue investing in retirement even if you are not out of debt. If you invest up to your employer’s match, then focus the rest of the income towards getting out debt you can do both things at the same time. You need to discover exactly how much you need to retire. Knowing your number will help put your savings into perspective. Planning for retirement is always an excellent financial goal, and the New Year is the best time to focus on it.
Savings and your Emergency Fund
Saving and investing your money are important if you truly want to begin building wealth. You need to set savings goals that you can reach in a certain amount of time. You should be aware of what you are spending and saving. When you stop going into debt for your major purchases that means you need to save for them in advance. Additionally, you can save money to help build your wealth. Everyone is also vulnerable to unforeseen emergencies. Without proper planning, your budget could fall apart should one arise. If you haven’t already done so, it’s important to establish an emergency fund. This will protect you if you experience any sort of unexpected emergency without breaking the bank. Your fund should be at least 3 months’ worth of expenses. This fund may take a while to establish, but the personal financial freedom you gain from having it is worth the wait.
Don’t add any more debt this year
This goal is key if you are serious about getting out of debt. The one exception you may make to this goal is if you are ready to buy a new home. This means you need to stop using your credit cards. You should try to get by with your current car or save up cash for a new car. If you can commit to yourself that you will no longer borrow money, then you can plan for major purchases, and really make a dent in the amount of debt you have.
Setting budgets and goals are great, but these efforts are futile if you do not have a plan to stay on track. Staying organised is a critical step to meeting your financial goals this year. There are several tools and budgeting apps out there that can help you remain on track. When it comes to your personal budget, the more organised you are the better.
Until next time, take care.