Happy New Year! 
The beginning of a new year provides a great opportunity for a fresh start and a chance to make new financial resolutions. Whatever stage of life you are in at the moment, be it in your 20s, when you are carving out your career and enjoying life or in your early 30s building your family while developing your career, or in your 40 -50s where things are stabilised at work and family and you are starting to plan for your retirement, here are 5 financial resolutions that can make a positive difference to your financial well being in the long run.
1) Update your family’s financial security system
Just like a home requires proper locks and alarm systems to protect its valuables against theft, your family needs a comprehensive risk management portfolio to defend against financial disasters, such as illness, disability or death. What kind of defence systems have you set in place for your family’s finances? Does your existing insurance coverage provide adequate protection for yourself and your loved ones?
Our financial needs and priorities changes as we progress to different stages in life especially if you have recently gotten married, started a family or changed your job, now is a good time to review if your existing insurance portfolio still provides adequate coverage and address any shortfall with a financial advisor.
Here are some common questions for you to consider and find out about your insurance:
- Does your critical illness insurance pay out upon early stage critical illness or only towards the end stages?
- Does your medical insurance cover for your medical bills fully or must you pay a significant portion of it?
- What age will your insurance plan cover you until?
- Will your insurance plans be able to pay you monthly to replace your income if you are unable to work?
Update the beneficiaries of your insurance and your CPF nomination. If you made a previous CPF nomination and recently got married, your CPF nomination becomes invalid and you need to make another nomination. Recent changes in the beneficiary laws have also made it possible for you to either make an i) revocable nomination of your insurance policy to any legal entity, including spouse, children, siblings, parents and even friends or ii) irrevocable trust to your spouse and children only. You may also consider setting up a will to assign your other assets to your loved ones.
Organise your policies and important financial documents in a safe place and make sure your family members are aware of where to retrive them in times of emergency.
2) Get your finances in check
Knowing where your money goes is a fundamental step for healthy money management. It gives you control & certainty over your finances and a sense of comfort knowing whether you can afford that new purchase. It’s common for many people to spend money unconsciously or on impulse, especially if the amount seems small. Yet the seemingly insignificant $2 here, $5 there, can adds up to a sizable amount each month e.g $5 each day actually accumulates to $150 in a mth and $1800 in one yr! People who started tracking their expenditure become more conscious and selective about their spending. They think twice before impulse purchase and ask “Do I really need or even use that?
How much you typically spend each month? If you have the figure or a range at your fingertips, that’s great! If your response is more like “urmm, not sure”, I invite you to start tracking your daily and monthly expenses.
With the numerous gadgets and apps available on iphone and other smart phones nowadays, tracking your expenditure is not only simple, it can even be fun! Some good iphone apps to recommend are iBearMoney, PocketMoney and ExpenseTracker. These platforms even provide graphs that reveal your spending trends and helps you to plan a budget more effectively. Monitor your expenses over 3-6 months and you will start to observe your spending habits and identify where some of your money “mysteriously” disappears to.
3) Seriously Save More Money
“I want to save more money!” That’s what many people declare and commit to, especially at the start of the year, unfortunately somewhere along the way, spending tempations such as that short weekend getaway we so desperately need, the mega sale, or that newly launched IT gadget can knock us off track.
So what can you do to counter that? One way is to automate your savings, by starting a regular savings program that automatically sets aside your designated sum of money each month to pay yourself. This ensures that at the end of each year, you would have a sum of designated savings and built up the habit. If you have extra income or bonus, also set aside a portion of it for savings first before you spend the rest.
Here’s a suggestion to managing your money effectively – Allocate your monthly income into various % for Savings, Expenditure, Investment and Enjoyment and make it automatic. Arrange for your bank to automatically transfer your income into 4 seperate bank accounts meant for Savings, Expenditure, Investment and Enjoyment. Develop the habit and discipline to withdraw cash, make payments or charge bills to the Expenditure account only without dipping into your Savings account. This way you will ensure you can save more money consistently.
4) Work your money harder
The inflation rate in Nov 2010 was 3.8% and is projected to rise even further in 2011 as the economy recovers. With prices of daily necessities increasing, COE prices rising, what plans have you set in place to make sure your money grows or at least keeps up with inflation?
We are working so hard to earn our money, watching our spending and saving hard, why should we allow our money to be lazy on us? Cash sleeping in the bank at a paltry 0.1-0.2% is not going to make us wealthy or even be enough to support our retirement.
For those who have not yet started investing, make 2011 the year to get started! There are plenty of books and online resources available on investing, start by learning more about the various investment vehicles available and selecting one that suits your risk tolerance,investment horizon and budget. You can refer to some of the useful books and links at my website
For those who have some form of investments or a investment portfolio, 2011 would be a good time to review your investment performance and portfolio. Has your investments been performing according to expectations? If not, are there any adjustments you need to make to your stock or fund holdings and your strategy? With the markets recovery and recent volatile movements, is your current portfolio well positioned to take advantage of the growth while managing your risk?
5) Start developing passive sources of income
One final resolution which I personally feel would have a significant impact on your financial well-being in the long run – generation of passive income. Passive income as I mentioned before in my previous post refers to money that is generated without you having to work for it. Passive income can flow into your bank account while you are asleep, on a holiday or at having fun, example include rental income, stock dividends and internet business.
With passive income, it provides an additional source of cashflow which can enhance your quality of life and is the key to financial freedom, THE day when you don’t have to work for money. The thing is that for someone to derive a significant enough passive income from stock dividends or rent, he or she must have a sizable amount of funds to start with and that is the challenge for many people.
Of the many passive income generating tools, internet business is one very promising area that can start generating passive income with very little funds and sometimes even zero marketing cost! This is an exciting area which the Financial Freedom club is working on, to bring to you someone who has already done it to show you the way and shortcut the process. Stay tuned for more exciting updates!
So there you have it, the 5 financial resolutions for the new year! Have fun setting your resolutions, one final tip – select something that inspires and motivates you to action and get started right away!
All the very best to you – make 2011 the year where your resolutions come true!
To your Success and Happiness,
Yong Hui
