Did you make any resolutions concerning your personal finances last January? If so, how did you do? Did you attain your financial goals, or was this year a total financial washout for you? While 31 December may be a day to reflect on the year gone by, now is the time to look forward to the New Year, review your financial scorecard for the past year, and then look for ways to improve in 2014.

 

There’s a good chance last year’s resolutions didn’t stick. According to a report from the University of Scranton’s “Journal of Clinical Psychology,” only 8% of us actually achieve our New Year’s resolutions. The good news about New Year’s resolutions is that you get a fresh crack at them each year. Here are some financial changes you should resolve to make in 2014.

Calculate Your Net Worth

If you haven’t done so already, the New Year is as good a time as any for determining what you’re worth (financially, of course). Calculat-ing your net worth is a key step in assessing your financial health and reaching your financial goals. Looking closely at all your assets and liabilities helps create a clear picture of where you are prioritizing your current spending and saving and where you need to make changes in your spending and saving habits.

Many sites, including Investopedia, offer free tools that will help you calculate your net worth. The resolutions you need to make will become more obvious after making this calculation.

Consider Your Retirement Savings

The simple fact is, if you want a comfortable retirement you have to actively keep an eye on your progress toward your goal. If you sit back and hope that your company pension will somehow provide enough to give you the retirement you desire, you are likely heading for disaster. Research has shown that as many as 94% of South Africans do not make sufficient provision to enjoy a comfortable retirement. As a result, they need to continue working in their retirement years, or depend on family members for support.
The financial pressures to provide for a financially secure retirement are increasing because:

*People are living longer, which means that they need more money at retirement.
 *Many people are retiring at an earlier age, again necessitating greater provision for their retirement years.
 *Inflation affects the buying power of retirees’ incomes and this is exacerbated by the fact that people are living longer. It is therefore important for people to have sufficient funds to provide for inflationary increases in their income after retirement.
 *Many companies have stopped paying medical aid contributions for retirees because of escalating costs. This has forced individuals to make their own pro-vision for medical costs after retirement.

The cost of delay

Putting off starting to build a retirement nest-egg is very costly indeed. The earlier you start making provision for your retirement, the better. The graph on the right illustrates how much you will need to invest at different ages to reach a goal of R1 000 000 at retirement. Please note that this is for illustrative purposes only. The graph is based on an investment return of 10% p.a. after charges.

Update Your Savings and Debt Reduction Goals

Easily accessed funds can be quite tempting! Therefore, to help you reach your goal, be sure to transfer amounts earmarked for savings from your current account to a designated separate savings or investment ac-count that is not easily accessed, thus making it less tempting for you to spend.

Take a few minutes now to set new savings goals for 2014 including how much you would like to add to your retirement nest egg, your children’s education fund or the deposit on a new home.

It is also a good idea to start paying some extra principal toward your home bond payment each month. By doing so, you’ll earn a risk-free return on that money equal to your bond interest rate. Plus, you will cut down on the number of years it will take to pay off your home loan. However, if you must choose between adding to your retirement nest egg and paying extra on your home loan then please talk to me and I will help to determine which option is more suitable for you.

Pay Off Your Credit Cards

If you owe money on credit cards, determine how much you can realistically afford to pay off during the year. For best results, try not to charge additional purchases on those cards while you’re trying to pay off what you owe. If you have high interest credit card balances, consider whether it would be more beneficial to pay off those high interest debts or to add to your savings. This is often not something that is immediately obvious but makes total sense when looked at carefully. Basically there is no sense in saving with a 5% return when you are paying 10% for credit!

Review Your Credit Report

Review your credit report, and take steps to repair any negative aspects. South Africans are now entitled to a free credit report each year thus leaving very little excuse for not reviewing what is one of your most important financial reports. Since errors in these reports are not uncommon it is in your best interest to check (You can get a free credit report at www.mytransunion.co.za). A poor credit re-port could adversely affect the amount you are able to save as it could result in you paying higher interest rates on loans which will ultimately reduce your disposable income.

Review Your Life Insurance and Disability Insurance Needs

As you progress through your career, your life and disability insurance need to keep pace and require regular revision. Consider whether you need more or less life insurance, and whether your needs would be better satisfied with new generation products or a different structure. Also, review your disability insurance coverage and determine whether you have enough cover based on your current income.

The Bottom Line

Be cautious about setting too many or unrealistic financial goals otherwise you may be hard pressed to accomplish many of them. Take this opportunity to restate your financial resolutions simply and clearly for the New Year and near future. It may be a good idea to maintain a checklist so as to keep track of how you are doing throughout the year. Consider meeting with me so that we may review the goals and objectives that you have established.