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Personal Finance

5 steps to organise your personal finances for the new year 

As we bid farewell to the old and welcome the new, there’s no better time than the beginning of a fresh year to take stock of our finances and set ourselves up for success. Whether you’re looking to tighten your spending, pay off debts, or save more for future goals, organising your financial life is an essential first step. But where do you begin? Fear not! In this step-by-step quick guide, we’ll walk you through assessing your current financial state and taking control of your money like never before.

1. Set SMART goals

Setting specific, measurable, achievable, relevant, time-bound (SMART) goals is crucial when organising your finances. These goals provide a clear roadmap and help you focus on what you want to achieve financially.

Start by identifying your long-term aspirations – buying a home, starting a business or saving for retirement. Once you have these in mind, break them into smaller short-term goals that can be achieved within 12 months. While short-term goals provide immediate gratification and keep you motivated, long-term goals ensure stability and security over time.

Take some time to reflect on what truly matters most to you personally and financially. Consider both your needs and wants as well as any future aspirations. It’s essential to align your spending habits with these priorities so that every dollar spent contributes towards achieving what truly brings value into your life.

Rank different financial objectives based on their importance and allocate resources accordingly; this will help guide budgeting decisions throughout the year while ensuring that money is allocated to areas that hold significance in accomplishing overall financial well-being.

2. Create a budget plan

A budget not only helps you understand where your money goes, but it also allows you to allocate funds towards specific financial goals. Start by gathering all your financial documents, such as bank statements, credit card bills, and any other relevant information that reflects your income and expenses.

Next, categorise your expenses into fixed costs (rent/mortgage payments, utilities) and variable costs (groceries, entertainment). Consider using budgeting apps or spreadsheets to track your monthly spending and ensure accuracy.

Once you understand how much money is coming in and going out each month, you must track these figures regularly. Monitor your income by keeping tabs on pay stubs or deposit records from all sources of earnings. Record every purchase – big or small – for expenses, whether it’s cash spent at a coffee shop or recurring online subscriptions. By consistently monitoring this data throughout the year, you’ll gain better insight into areas where overspending may occur.

With a clear picture of your income and expenses before you, focus on identifying areas where spending can be reduced. Analyse each expense category critically; determine which are necessary for maintaining daily life versus those that could be cut back without significantly impacting well-being. Look for subscriptions or memberships that aren’t used frequently enough to justify their cost; consider negotiating lower rates for services like internet or insurance; meal planning can help save significantly on grocery bills, too! Remember that small savings here and there add up over time and contribute toward achieving larger financial goals in the long run!

3. Build an emergency fund

An emergency fund is a safety net providing financial security in case unexpected expenses or emergencies arise. It’s important to recognise that unforeseen circumstances, such as a medical emergency or job loss, can happen at any time. An emergency fund ensures you are prepared for these situations without derailing your entire budget or debt.

The amount of money you should save in your emergency fund depends on various factors, such as your income stability, monthly expenses, number of dependents, and personal circumstances. Financial advisors generally suggest saving three to six months of living expenses as a starting point for your emergency fund. However, assessing your unique situation and adjusting this target is essential. Consider factors like job security, potential healthcare costs, and other relevant risks specific to your life circumstances.

Suppose your freelance work often leaves gaps in your income flow or large amounts are required for necessary items (e.g., home repairs). In that case, it may be wise for you to consider keeping six months’ or more worth of living expenses in your savings accounts so you have a larger buffer to depend on.

4. Streamline bill payments

Managing multiple due dates and various payment methods can often become a cumbersome task, and the consequences of missing payments or incurring late fees can be frustrating and financially burdensome.

One effective way to simplify this process is by establishing automatic transfers directly from your bank account to your creditors or service providers. By doing this, you create a seamless and reliable method for ensuring your bills are paid promptly, all without the need for constant manual intervention.

Alternatively, you can take advantage of the convenient online bill payment services offered by many financial institutions. These services typically allow you to schedule payments in advance, set up recurring payments for fixed bills, and even receive notifications or reminders to keep you informed. By embracing these digital tools, you not only save time and effort but also gain peace of mind knowing that your financial obligations are being taken care of in a timely manner.

5. Review insurance coverage

Insurance is an essential component of any comprehensive financial plan. As the new year approaches, taking stock of your existing insurance policies and ensuring they adequately protect you and your loved ones is crucial. Start by reviewing each policy – whether it’s health, life, hospitalisation insurance – to understand what coverage you have in place.

After assessing your existing policies, it’s important to identify potential gaps in coverage. Are there any areas where you feel underinsured? Consider factors like changes in income, lifestyle modifications, or growing family members that may require additional protection. For example, if you recently welcomed a child into your family, updating your life insurance policy might be necessary to provide adequate financial security for them should something happen to you. Remember that as circumstances change over time, so do your insurance needs. Before renewing any policies, take this opportunity to shop around and compare different insurers’ rates and offerings.

Seek professional advice if needed

While organising your finances for the new year can be rewarding and empowering, it is important to recognise that everyone’s financial situation is unique. If you find yourself overwhelmed or unsure of how to proceed, seeking professional advice from a financial advisor may be wise. Financial advisors can provide personalised guidance based on your goals and circumstances, and help you make informed decisions, create strategies for saving and investing, and optimise your overall financial plan.

When choosing a financial advisor, consider their qualifications, experience, and reputation. Look for someone who values open communication and understands your individual needs. Establishing trust with your advisor is essential as you will be sharing sensitive information about your finances. 

Remember that while working with a financial advisor can be beneficial, it comes at a cost. Before making any commitments or signing contracts, ensure that you clearly understand how fees are structured – whether it’s an hourly rate or percentage-based fee – so there are no surprises down the line.

The fifth perspective

Remember that organizing your finances is a journey, and it’s important to adapt and adjust your plan as your circumstances change. By following these steps and staying proactive, you can embark on a path towards financial stability and prosperity in the new year and beyond. All the best!

Wang Choon Leo, CFA

Choon Leo is a growth-focused investor with an interest in innovative platform businesses that can connect users and fix market inefficiencies. He believes that companies with the most competitive business models will compound in value over the long term. Choon Leo is a CFA charterholder.

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