It’s that time of year again… Many of us tend to make New Year’s resolutions around various issues relating to their lives, such as leading a more active and healthy lifestyle, quitting smoking and improving oneself.  One important aspect that should not be ignored is your finances.

The beginning of the year is a good time to take stock of your finances and move forward with a plan.  The following principles will help if you remain committed throughout the year;

Make a budget– Budgeting should not just be carried out by large corporations and businesses, it is also important for families to understand where their money is being spent.  Keep a summary of your expenses and remember to budget for things like car servicing, registration, insurances etc in addition to your weekly spending.  Make sure that your income exceeds your expenses and focus on spending less on discretionary items. In short, live below your means and differentiate between needs and wants!

Clear debt–  Non deductible debt is debt which you cannot claim a tax deduction on.  For this reason this debt is informally referred to as “bad debt”.  Examples of bad debt include; car loans, personal loans, credit cards and to a lesser extent mortgages.  This year prioritise to put more money towards these debts to pay them off quicker and save on interest costs.  If you can adhere to directing the savings from spending less on discretionary items towards these so called bad debts then you are on the right track.

Create wealth/ Investing– Focus on building savings for an emergency fund.  Also it is important to invest in your long term financial security by taking advantage of compounding interest and dollar cost averaging.  More information can be found on these topics in previous blogs.

Remember to set achievable goals and evaluate your performance regularly.  While it is difficult to make true, lasting change, I see many clients get hooked on these resolutions and make big changes in their financial lives. It does not happen overnight. It is a lot like exercising, in that the effort requires commitment, hard work and some pain.