As we move into the New Year, it has become customary practice to devise a list of resolutions for the year ahead. Vaguely crafted good intentions won't do it and don’t last the full year. You have to have a plan. Here's a 12-month plan you may consider for the year ahead, which should be easily achievable.
Each month, set one financial target and hit it. Easy, manageable - and it means this time next year you'll be looking back on 2012 with some satisfaction.
JANUARY: Target your cash flow. Get out all your statements and cheque stubs for 2011 and work out where all your money went. Chances are you spent more than you planned, or maybe realised. Restaurants, shopping, entertainment, car payments - it all adds up. If you want to get control of it, you have to understand it. Now set a budget, and talk to your family about ways to cut back and save more. Take a break from digital TV and don’t go to the movies for the next few months. It is summer time - what are you doing indoors?
FEBRUARY: Start saving now to maximise those savings! You have just come out of an expensive December and just paid all your big annual expenses like school fees in January. Most financial planners agree you should save 15% or more of your total income each year. Try to increase your contribution to your company retirement fund and savings vehicles like unit trusts. The tax man can help you save: use the last month of the tax year to achieve the maximum tax deductibility you can by making an investment into a retirement annuity
MARCH: Live without plastic for a month. Lock up your credit and debit cards. Generations lived without the spending ease and convenience of credit cards. It is no coincidence they found it much easier to live within their means. Try it. Set a weekly budget, draw cash at the bank each week, and live on it. Unless you are traveling - where a card can be invaluable - you may find it easier than you imagined. Once you get used to it, keep going. Studies have shown that you may spend up to 25% less simply by seeing how much you spend.
APRIL: Reduce or at least consolidate your debt. Pretty much any debt other than a reasonable home loan is a financial burden. Credit card debt is a disaster - you're basically going backward financially as long as you carry an outstanding balance from month to month. Try to consolidate all your debt in the lowest interest charging place. Cut up the cards, and live like a pauper till you get out of credit-card jail. Try to build up an emergency fund of three month’s salary to meet unforeseen events which may put you in significant debt.
MAY: Tackle your insurance. Chances are you are wasting hundreds of Rands a year on home and car insurance. Take this month to shop around aggressively to find cheaper coverage. Also look at the amount you are insuring. As your car loses value, so you should reduce the amount it is covered for. You can also save more looking to increase the excess on your policies with at least inflation or the additional amount you have saved in your emergency fund.
JUNE: Invest in yourself. After all, your knowledge and skills are your most important asset. Consider how much you could improve your lot in life if you invested [some money instead] in a leadership workshop, better communication skills or anything to improve your work performance. In time it should pay off handsomely. Given you have probably added a layer of insulation for winter, look to improve your health which could save significant medical costs in future, not to mention potentially secure cheaper life cover.
JULY: Given we have reached the half way point, it is time to check your progress on the cash flow. Print out all your statements. Analyze spending by categories. See what you planned to spend, and what you actually spent. This is a constant battle. How is that emergency fund coming along?
AUGUST: Spring clean your investments. Decide on the asset allocation you should have. Then look at what you have right now. There's probably a ton of rubbish in there -- mediocre unit funds, shares bought on tips, money left sitting in a low-yielding account. Time to stop procrastinating. Rather than cancelling policies and incurring further fees and penalties, look at the options and portfolio choices you have in the existing structures to accommodate your needs. Clear out the rubbish, and make the money work for you.
SEPTEMBER: Open Fundisa accounts to help educate your children and grandchildren (or anyone whose education you may wish to sponsor). These are no-brainers and really cost efficient. In addition, a bonus of 25% of your annual saving to a maximum of R600 per year per child is calculated in October and deposited in your account in December. It will help create a disciplined approach to save for education.
OCTOBER: Negotiate a Christmas truce with all the adults you know. That means family, extended family and co-workers. Stop the holiday shopping waste before it starts. This may save you hundreds of Rands. The only thing you will lose will be a bunch of socks and ties you won't wear and trinkets you don't want. They'll save the same thing, too.
NOVEMBER: Update your will. Do you have one? And if you do, how long ago did you check it? Circumstances change. Maybe you've had children or grandchildren. Or minors have graduated. Your assets have grown (or, alas, shrunk). Too many people avoid dealing with their wills because thinking about death makes them feel uncomfortable. Too bad. You're going to die, like me, like everyone else. Deal with it. Dying with no or an out-of-date will can cost your family incredible amounts of pain and money and throw away decades of hard work.
DECEMBER: It is time to consider your medical aid contributions as options need to be renewed. What benefits and cover are you likely to need? Often it is tempting to reduce your benefit cover at this point, only to realize that you have many more out of pocket expenses. Many South African’s are under insured. As you are about to embark on a hazardous year-end holiday journey, is there sufficient life and disability cover in place should something unfortunate happen?
Good luck -- and best wishes for a happy, prosperous and financially fit 2012.
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