Make a start to your financial freedom
With all the volatility that exists in the financial markets these days, it is easy to get discouraged about your own financial situation. But here’s some good news for a change. Just as with achieving a balanced diet or maintaining a regular exercise regimen, getting your financial house in order can be achieved and it is never too late to start. While personal finance may seem complicated, it really boils down to several good habits and critical steps can be achieved that can make the difference between barely making ends meet and increasing your net worth each month.
One of the first steps is to prepare a statement of all your incoming and outgoing funds. Knowing where to start is essential to creating your financial freedom in the long run.
Put categories that fit your personal situation and your spending habits. There should be enough categories to give you a meaningful picture of where your money goes and where you might be able to cut costs, but not so much detail that tracking is a chore that you’ll soon tire of. Regularly review categories to determine if you need more or fewer, review expenses, and brainstorm with friends or family about ways to trim costs in each category. Remember to keep a category for your investments.
Make sure your income projections are accurate. Include interest income and dividends for those who have investments in dividend paying stocks. You will also need to include expenses that don’t occur on a monthly basis such as auto maintenance, homeowners or car insurance, property taxes to name a few. It’s also important that you track and record your cash expenses as cash disappears quickly. If you are unable to record your expenses immediately, keep the bills until you are able to do so. Make realistic written goals. Budgeting is not just about tracking your costs it is about setting financial goals and finding ways to meet them. Without goals, your budget is just a pair of handcuffs.
Identify spending patterns you may not have been aware of when you weren’t tracking your spending such as the amount you spend on entertainment monthly or the number of times for the month that you dined out or entertained your friends.
If you are late on your credit card payment and you only pay the minimum requirement, you could be accumulating several thousand dollars in fees. If at all possible, try and pay your credit card bill in full to avoid the additional cost. You may want to consider using your debit card instead as you can only use what you have and is a disciplined approach to reduced spending.
Refinancing your credit card or other debts is another option to consider. Since the National Debt Exchange (NDX) conducted in February 2013 interest rates on loans have been reduced by several basis points.
Here are two simple steps that can put you ahead of 99 per cent of your peers. Consider monthly salary deductions; determine the amount you can afford to set aside and invest those funds in securities or asset classes suited to your needs. Invest in a variety of Fixed Income Investments, Equity investments in local and other currencies, CI mutual funds and Portfolio Management. By having money automatically deducted, you won’t be tempted to spend it. Secondly, you want your money to grow so contact an SSL Wealth Advisor, someone with the knowledge and expertise to help you on your path to wealth.
Invest as much as you can in your company pension scheme which is tax free. You have the option to increase your contribution from five per cent to 10 per cent (something that may not be well known). Speak with your Human Resource Manager for more information on how to maximise your pension benefits. If you do not have a pension plan, start investing now to supplement your retirement income.
An emergency fund helps protect you against all of life’s ups and downs, whether they are car repairs, job loss or a leaky roof. If you are young, single and have no mortgage, strive to put three months’ expenses in an emergency fund. If you have a house, kids or both, strive for six months expenses. Be sure to keep your funds in an easily accessible liquid account so that it continues to grow.
Be sure to keep a positive attitude, set your goals, watch your spending habits, and let us aim for being debt free. As this Chinese quotation states being “Free from debt is free from care.”
Deborah Vieira is a wealth advisor at Stocks and Securities Limited. contact: dvieira@sslinvest.com