Was your new year’s resolution to get your finances in order but here you are three weeks in and not quite sure where to start? Well, we’re here to help! If you’re not savvy about money, it can be bewildering to know how to go about organising your finances. This stuff isn’t taught in schools so it’s not surprising that you will feel a little at sea.
We have put together this handy list of the first five questions to ask yourself when getting your finances in shape. If you work through each point one by one and take the recommended actions, you will be well on your way to getting all your financial ducks in a row – and to being in the tiny minority of people who will end 2019 having kept their resolutions!
1. Do you have a monthly budget?
Budgeting is the key to having control over your finances. You need to know what is coming in and going out of your account every month and ensure that the incomings exceed the outgoings (by as large a margin as possible!). Use an app or spreadsheet to track your expenditure – it’s a really useful exercise and can often reveal some surprises. (Like yes, you really do spend £100 on takeaway coffees every month!) Understanding where your money goes can be helpful in identifying areas where you can cut back and free up money for the next steps.
2. Do you have zero bad debt?
Good financial housekeeping means NO unsecured debt. Those unpaid credit and store card bills have to go so your next task is to pay them off. That might not be something you can do overnight but total them up and decide how much you can afford per month to get your balance(s) to zero. You might also want to consolidate your debt and see if you can benefit from any offers of interest free periods for balance transfers and the like which will speed the process up.
3. Could you live off your savings for three months?
Sadly, life doesn’t work to a script and sometimes the unexpected happens. If your car were to die on you, do you have the funds stashed away to get it fixed or replaced? Or perhaps you are a freelancer and would not be earning if you happened to get sick for a couple of weeks. Would you be able to cover your day to day expenditure until you are back on your feet? An emergency fund of between three and six months of your living costs is the next step in the financial planning process. It needs to be kept readily available at short notice so put it in a bank account which earns as high interest as you can find but with no restrictions on withdrawal.
4. Are you saving each month?
Now you’re in the habit of saving and have your emergency fund safely tucked away, you’re ready to start building wealth. That sounds pretty exciting doesn’t it? At the beginning your savings may be humble but we all have to start somewhere! Once you get into the savings habit you might be surprised at how quickly your balance accumulates and that’s when you start to benefit from the magical power of compounding. That’s interest on interest which means FREE MONEY. And who doesn’t want that?
5. Do you have a financial adviser?
Once your savings have accumulated to a reasonable level it’s time to think about where you are going to put them. Here’s a clue: not in the bank. You’ll be lucky if bank deposits keep up with inflation. In fact it’s entirely possible that your purchasing power will be eroded as a result of sitting in the bank.
Be shrewd and look at other options like bonds, stocks or mutual funds. That means it is time to seek some expert help. Forget your preconceptions, you don’t have to be wildly rich to benefit from the advice of a professional. A financial adviser can help you work out what you want to achieve with your savings, how you feel about risk and the amount of risk you can afford to take. They should also be able to recommend an investment manager and work in tandem with them to get the best out of your money.
If you manage to do all that by the end of 2019, you will have had an extremely productive year, and you’ll be significantly better off. It doesn’t stop there though. If you’re ready to take things one step further, check out the next five questions you need to ask yourself here.
A leading provider of expat financial services and wealth management services across Asia.
