What To Do With Your Finances To Start 2016 Right
A new year is approaching, and with it comes the desire to do better than the previous year. We all make New Year’s resolutions for all aspects of our life – health, work-life balance, relationship goals – and our finances should be part of that as well.
If you’ve been spending too much and saving too little, or if you don’t even know where your money is going, this is a good time to have a personal finance audit. Take a look at your savings, your spending, investments and your processes to see what can be improved.
Keeping your finances in order is an on-going process – much like keeping your home clean. But some organization makes it more likely to accomplish your financial objectives.
Review Your Debts & Loans
Debts and loans are withdrawals from your accounts. Not all debts are equal. For instance, a housing loan is clearly adding towards the build up of an asset(your home), but a credit card debt will affect your credit score negatively. Look into all your existing debts and loans to see if you can come up with a faster way to pay them off in the new year. Most of the time, it’s only a matter of priority.
For your home loan, check if it’s time for a re-finance since interest rates might be rising soon, now that the Federal reserve has raised its interest rates. Refinancing your home loan has the potential to save you thousands of dollars, so take a look around and do your homework diligently.
Credit Card Audit
How many credit cards do you have now? If you’ve got more than 3, it’s quite likely that you are under-utilising one or more cards. Look at your spending for the year and determine which category do you spend most on – grocery, F&B, online shopping, petrol or travel? Then choose the cards that provide you the optimal benefit suited to your shopping patterns.
You might choose a cashback card, a card that lets you earn air miles or reward points. Whatever it is, having too many cards will only increase the likelihood of you having to pay card fees and higher chances of forgetting to pay your bills.
Review Your Insurance Policies
Most Singaporeans are covered by the Medishield Life, but we also know that it provides just a basic insurance coverage. If you haven’t taken any insurance coverage yet, 2016 might be the year to start. If you have already had several policies, it’s always a good idea to review your policies once a year to ensure that they provide coverage for what you need.
A quick review of your current insurance policies or a short meet-up with your financial advisor could do much to helping you decide if you have too much insurance or insufficient coverage.
If you’ve entered a new stage in life, such as having just married, had a new baby or bought a new home, you might want to look into additional policies that cover these aspects.
As with any other new year resolution, such as losing weight or picking up a new hobby, you can have similar goals for your finances. One such goal should be a savings goal. Savings form an important part of our finances. If you have not started, a good way to start is to put aside at least 20% of your monthly salary towards savings.
Many financial experts also advise that everyone save at least 6 months’ worth of their salary as an emergency fund to tide over unfortunate situations such as retrenchment or unexpected medical expenses.
You can also save up for specific purposes, such as a travel fund or build up a sum of money that you can eventually use for investments.
Investing, as with anything in life, benefits from an early start. If you’ve often been curoius about investing but are afraid of the unknown, maybe it’s time to get educated and start. It’s a misconception that you need a lot of money to start, or that investing is very risky. You can always start with buying bonds, such as the Singapore Savings bonds, or put aside $200 a month with regular investment plans such as the OCBC Blue Chip investment plan or the POSB Invest Saver.
These plans make use of the strategy of dollar-cost averaging, which lowers the per unit cost over the long term. Otherwise, stocks trading is relatively easy in Singapore as well, with the SGX reduced lot size making it a low cost barrier for newbie investors to start without a big amount of capital needed.
Make Use of Tax Reliefs
While it’s not time to file taxes yet, it makes sense to be aware of what type of tax reliefs you can apply for. These include CPF Cash Top-up relief for Singaporeans and Permanent Residents who have made cash top-ups under the CPF Retirement Sum Topping-Up Scheme to either their Special Account (for recipients below age 55) or Retirement Account (for recipients age 55 and above). You can claim the exact amount of tax relief as the amount you’ve topped up.
Another tax relief that could be useful is the Parent relief – the Parent Relief is given to promote filial piety and recognise individuals who are supporting their parents, grandparents, parents-in-law or grandparents-in-law in Singapore. Do ensure you fulfil all the criteria though; you can read more here.
Automate your Finances
Most of us have at least 2 or 3 bills to pay per month; and it doesn’t help that each of them comes with a different billing cycle. The best way to avoid any late payments for your bills is to automate them.
The easiest way to do this is to either apply for GIRO in order to have all your bills paid automatically, or consolidate them under your credit card so that you pay just one bill. A great thing about using your credit card is that you can also earn reward points or cash rebates with the consolidated spending on your card. However, you will need to be sure to pay this one bill or you’d end up not paying for everything!
With these 7 steps, start to think about how you can start the year great and take action towards a more comfortable financial position.