New year's resolution: Achieving financial fitness

SSL in the Money

Deborah Vieira

Wednesday, December 28, 2011

With all the volatility that exists in the financial markets these days, it is easy to get discouraged about your own financial situation, especially as the New Year approaches. But here is some good news for a change. Just as with achieving a balanced diet or maintaining a regular exercise regimen, getting your financial house in order can be achieved and it is never too late to start. While personal finance may seem complicated, it really boils down to several good habits and critical steps that can make the difference between barely making ends meet and increasing your net worth each month.

A budget is simply a breakdown and plan of how much money you have coming in and where it goes. Knowing where to start is essential to creating your personal budget. Make realistic written goals. Budgeting is not just about tracking your costs but is also about setting financial goals and finding ways to meet them. Without goals, your budget is just a pair of handcuffs.

Create categories that fit your personal situation and your spending habits, just enough to give you a meaningful picture of where your money goes and where you might be able to cut costs, but not so much detail that tracking becomes a chore you'll soon tire of. Regularly review categories to determine if you need more or less, review expenses, and brainstorm ways to trim costs in each category.

Make sure your income projections are accurate and be sure to include expenses that do not occur on a monthly basis, such as auto maintenance, home or car insurance, property taxes, etc. It is also important that you track your cash expenses as cash disappears quickly and if you do not record everything you spend it on, you will have a distorted view of your spending. If you are unable to record your expenses immediately, hang on to your bills until you are able to do so. Lastly, identify spending patterns you may not have been aware of, such as the amount you spend on entertainment monthly or the number of times per month that you dined out or entertained your friends.

If you are late on your credit card payment for example, and you only pay the minimum requirement, you could be accumulating several thousand dollars in fees. If at all possible, try and pay your bills in full to avoid the additional cost of late or reconnection fees. You may want to consider using your debit card instead as a more disciplined approach to reducing unplanned expenditure; after all, you can't spend what you don't have. Another great way to reduce your credit card or other debts is to re-finance and/or amalgamate your loans into a single facility.

Here are two simple steps that can put you ahead of 99 per cent of your peers. Consider monthly salary deductions. By having money automatically deducted, you won't be tempted to spend it. One way to do this is by increasing your contribution in your company's pension scheme from five per cent to 10 per cent as this will be deducted prior to taxation. Speak with your Human Resource Manager for more information on how to maximise your pension benefits and if you do not have a pension plan, start investing now to supplement your retirement income.

Secondly, you want your money to grow and someone with the knowledge and expertise to help you on your path to wealth. Determine the amount you can afford to set aside and contact your investment advisor to invest those funds in securities or asset classes suited to your needs.

An emergency fund helps protect you against life's ups and downs, such as car repairs, job loss or a leaky roof. If you are young, single and have no mortgage, strive to put at least three months' expenses in an emergency fund. If you have a home, kids or both, strive for at least six months expenses. Be sure to keep your funds in an interest earning but liquid investment, so that it not only grows but is easily accessible.

Here are four critical building blocks for those seeking to be savvy investors:

Harvest the desire to make an unshakable commitment to sacrifice and make the decision now to do whatever is necessary to achieve your goals. Couple this with the determination to keep at it until you succeed in spite of problems/obstacles you will encounter and the discipline to develop the habits necessary to gaining financial independence and you will be well on your way to financial fitness.

With only a few days to go before the start of the New Year, remember these four D's, because as Leo Rosten wisely coined "Money can't buy happiness, but neither can poverty."

Deborah Vieira is a wealth advisor at Stocks & Securities Ltd. You may contact her at dvieira@sslinvest.com

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New year's resolution: Achieving financial fitness