New Year Financial Resolutions
Time flies. Another year is just about to bite the dust, and a new one is almost upon us.
Do you still make New Year Resolutions? Or have you long since given up with a history of pledges that never made it through January? Either way, New Year really is an excellent time to make some financial resolutions. Most of us get a decent break from work over the Holiday season, and in-between festivities we can take the time to review our finances.
1 Check your asset allocation
One of the most important aspects of financial planning is asset allocation, how we balance our funds between different types of investment. We need to review this periodically for two reasons. First, the relative proportions may have changed as different classes perform differently over time. Second, our own personal goals and circumstances may have changed, meaning some adjustments are needed. Your review may just confirm that you’re on the right track. If so, great, you’ll sleep easier at night. Otherwise you may need to do some re-arranging. But avoid minor switches; the fees involved will probably outweigh any benefits.
2 Lose less in fees
One of the biggest drags on the growth of your wealth is fees and commissions. And one of the worst leakages is in the form of mutual fund management fees. Time and again research has shown that managed funds on average underperform the market as a whole after management fees. And the few that do perform better (whether by luck or skill) can’t be predicted in advance. Ditch the managed funds for lower cost index funds or ETFs and keep the difference in fees in YOUR pocket. However, don’t begrudge commissions to TRUSTED advisors who actually make/save you money, eg real estate agents, lawyers, accountants etc. Choose these carefully, but when you find good ones it’s worth paying a little extra to keep them – they will earn you back their fees and more.
3 Develop financial thinking
Many of us want to be rich, but we don’t do anything about it (other than maybe buying a weekly lottery ticket). Wealth begins with the financial thinking. Think before entering into any financial transaction. Is it good for you? Are you getting the best deal? Maybe you can forgo a few inches bigger TV screen today to build your income-producing assets for tomorrow and beyond. Or when an over-eager salesperson offers you insurance with your latest purchase ask yourself if you really need it?
4 Watch your debts
Unsecured consumer debt is a killer. It’s the most expensive form of borrowing and pushes countless folk into bankruptcy every year, leaving the still solvent borrowers to pay for their recklessness. Credit cards are fine as long as you settle each month and don’t carry a balance. If you do have debts on your credit card look at moving it to lower rate borrowing, eg by extending your mortgage.
5 Do a stock take
Check through your bank statements for regular payments that may no longer be appropriate, eg insurance policies no longer needed, subscriptions for magazines you hardly look at, membership of clubs you never visit… And for those things you do need, check you’re getting the best deal. Price comparison sites make it easy to check.
6 Make time for money
We all lead busy lives. But just an hour or two a week balancing the family accounts, reading the financial pages, or catching a money show on TV can pay rich dividends. Be informed, but maintain a healthy skepticism too by not rushing out to buy every single tip you come across.
7 Watch the pennies
Maybe you could walk all or part-way to work rather than taking the bus or subway (better for your health too). Taking a few minutes to make a sandwich and/or brew a flask of coffee rather than buying out might seem like cents a day, but over weeks or months those cents become a significant number of dollars.
