Every beginning of the year we start out bushy-tail and eager about making our new resolutions work, from losing weight and getting fit to climbing higher on the career ladder. However, many of us are hindered by our lack of discipline and also our out-of-shape finances. So this year, why not make resolutions that will make you financially healthier?
Financial well-being can never be achieved without proper planning. Planning helps create the strong foundation to build your financial security on. If you make a promise to yourself to take control of your finances, you will be on the right track to achieving a financially sound life. Each New Year brings the chance for a fresh start and the opportunity to improve your financial picture.
Here are 10 New Year financial resolutions that are you can still make to boost your finances by the end of the year:
Resolution #1: Pay yourself first
All too often, when we receive our pay cheque, we pay everyone else first and then save the leftovers. If you spend first, rarely will there be any money left to be put away for rainy days, investment opportunities or even retirement savings. From this year, adapt the habit of paying yourself first before paying off your other financial commitments.
Before any bill is paid, put away at least 10% of your income and place it out of easy reach. Choose savings options that can potentially yield higher rates of return than savings accounts or fixed deposits.
This becomes the foundation of your savings and your financial security. This practice will also help you outsmart the ever-sneaky lifestyle inflation. No matter how inflated your lifestyle will become, you can be assured that your monthly savings will not be compromised. With that in mind, you can experience a sense of confidence and security as you envision the financial future you are creating.
Resolution #2: Consciously spend less than you earn
More often than not, we live from pay cheque to pay cheque. Our money is already “spent” before our salary is even credited into our accounts, with the amount of bills that we have committed ourselves into. Spending habits are often improved only after a painful financial loss, such as bankruptcy. Do not wait till the last minute to manage your poor spending habits. This creates a financially stress lifestyle, which you can avoid by making conscious spending decisions.
For example, if you are earning RM4,000 per month, you will approximately be left with RM3,200 for monthly spending (minus RM400 for EPF, Socso and tax and minus another RM400 for 10% savings). Plan your spending to be within that amount each month. The less you spend, the more you can save.
Resolution #3: Establish an asset fort blueprint
Strong forts are built with one stone at a time. Their strength was the result of a firm foundation and the proper layering of materials. Forts provide protection for thousands and stands strong over time. But before anything, each fort started with a blueprint.
The same goes to our financial fort. In order to provide for the people and things most important to us. Whether a fresh graduate just starting out or a senior manager nearing retirement, having a blueprint that incorporates the tools and techniques to help reach our value-based financial goals is critical to success.
First, the foundation of our asset fort should be built with risk management tools such as permanent disability insurance, life insurance, and medical insurance coverage. On top of that layer, build a long-standing asset fort with emergency funds and investment.
While circumstances change, having a blueprint for the proper asset fort allows us to attend to our financial needs and weather the financial attacks that we may face.
Resolution #4: Use credit cards wisely
We often use credit cards for the rewards such as air miles, reward points or cash back. Point accumulation justifies unhealthy spending amounts. Ensure discretionary spending is consistently in check. In other words, though it matters how we use our credit cards, in order to get the best out of it, what matters more is how much.
Some of us are hooked to the bonuses offered by credit card. Ever felt the urge that we must reach that next elite status level or collect a certain amount of points? It sounds like such a justifiable reason to spend more this month – but don’t fall for it. The majority inadvertently shift their higher income into higher spending with justification of being tied to credit card points and the ability to pay off month-end balances. The bitter reality is that the majority of their pay cheques move directly toward paying off credit card debts.
A wiser plan? Even though you may qualify for a RM15,000 credit limit and acquire enough points to “earn” a free flight – bear in mind the debts you will incur at the end of the day. By doing so, you can guard your credit ratings and keep your essential monthly expenditures within a safe level. New credit levels will help create a plan to keep spending in check. Knowing there is a spending limit and that transactions would not process or extra fees will be charged is a great overspending deterrent.
Resolution #5: Equip yourself with personal finance knowledge
The world of personal finance may seem complex to most. However, once you delve deeper into educating yourself about your financial life, the fundamentals appear simpler. If you want to be better in managing your finances, you need two things: knowledge and focus.
Whether you are doing a good job managing your personal finance or you are just exploring the personal financial world for the first time, it pays to set aside some time to read up. Commit your commuting time to read articles online about money management to learn new ways to save and grow your money.
Resolution #6: Eliminate your debt
Ultimately, wealth is a formula: assets minus liabilities. So if you want to build wealth, then you must decrease your debts. Total up your debts today and devise a realistic plan to decrease them.
In an effort to live your dream life, you may owe tremendous amount of debt, such as mortgage, car loan, student loan, and others. Or perhaps you have the Sacrificial Lamb Syndrome, where you put everyone else (your kids, your family, and your community) ahead of your own financial goals. Make this the year you bring these debt balances close to zero, and you will be closer to the wealth you deserve.
Resolution #7: Build up emergency savings
Start saving for rainy days by making room for an emergency fund. The goal is to save up to six months to a year’s worth of expenses in savings. An emergency fund will allow you to resolve minor crises without going into debt.
Resolution #8: Start planning for retirement
In the words of youth, “you only live once” or YOLO. We may be earning well, living great, and feeling good – retirement is something for the old to worry about and there is always plenty of time.
This is a misconception and for the coming year, you should at least start thinking about planning for retirement. When we are young, the responsibilities are less and we can save a lot more at this point of time. With the ever-increasing cost of living and inflation rate every year, the later you begin the less you save. This is the recipe for a disastrous old age.
There are many different retirement accounts, and each has its own maximum contribution per year. Employees Provident Fund (EPF) is no longer adequate to fund your golden years. Whatever type of account you have, make it a resolution and a priority to max out your contribution this year. Besides the tax benefit, you will be securing your future.
Resolution #9: Stick to your budget (for once)
Every New Year, we see people creating a financial budget to help them save, invest and better manage their money. However, a month or two into the year, they will be too caught up with life, and things go back to normal.
Creating a budget is not going to cut it anymore. Sticking to a budget for the rest of the year is the resolution you should be making.
And in order for that to happen, you need a realistic budget. Review how you’ve been spending last year and devise a budget according to that. Cut a little here and there by stages so you won’t be going cold turkey right after the New Year’s fireworks fade.
Resolution #10: Develop financial relationships
It is never a good idea to make major decisions without putting some thoughts into it. Ideally, you should try to develop relationships with people who can help you maintain or improve your financial well-being.,
Get to know them and let them get to know you. That way, they are more likely to go the extra mile to provide the kind of personalised service that can keep your goals on track. A good accountant can help you save money, a banker can help with loan do’s and don’ts, and a lawyer can make sure your personal affairs are in order.
Every year we set and reset our financial New Year’s resolutions but this year expect to see your personal financial goals achieved. High net income may lead to a high net worth, if accompanied with the right long-term strategy.
A wise person once said that “a big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.” These resolutions can make this happen. However, always set realistic goals to ensure your resolution becomes a reality. Here’s to a happy and financially healthy future.
