Did you make any financial decisions this year that you regret badly? Did 2011 turn out to be prosperous or a complete disappointment? Whether your personal finances were in the red or close to it, it's time to move on and look forward to the New Year.
A few simple strategies should help you tighten any loose ends from the year past, as well as ensure that 2012 will be the best year yet, for you and your finances.
Create a financial plan
As in every important task, you need to have a plan in place. Ask yourself what you want to achieve next year. It comes down to what you want to prioritise in 2012, whether it be your children who will soon go to college, your mortgage, dream home or the annual vacation.
"A good financial plan looks at both short-term and long-term goals and helps you prioritise them. Once you have the plan in place, it should be easier to stick to it, as you know what you are doing, and just as importantly, why you are doing it," said James Thomas, managing director of Acuma Wealth Management.
Make a budget
Now that you have drawn up specific goals, remember the very basic, oft-repeated rule in every financial planning: create a budget and stick to it. The question to ask at this point is, do you have the money to follow through your plan? You need to figure out exactly where all your money is being spent and how much you have left each month.
"The New Year is the perfect time to assess your monthly income and expenditure to determine where possible savings can be made," said Sarah Lord, wealth planning director at Killik & Co (Middle East and Asia). Crucial to the success of any budget is to ensure that you stick to it, but also ensuring that the budget includes everything.
To start off, write down clearly and in order your income and your fixed and variable expenses. This will give you a clear picture as to the size of your disposable money. According to Shailesh Dash of Al Masah Capital, this would also be a good foundation from which to develop savings, spending, retirement, mortgage and vacation plans.
If you haven't kept track of your expenses, you should start now. "A good way to start this is to get yourself a fruit bowl, and then for a month, ask for a receipt for everything that you buy, put the receipts in the bowl and then at the end of the month, look at what you have actually bought. Once you have carried out this exercise, you will know exactly where your money is going, which may be a surprise, and lead to some immediate savings," advised Thomas.
Pay down your debts
If you have borrowed money from the bank or from somewhere else, paying it off should be your priority. Forget buying the brand-new sports car you've been eyeing for months or going on a summer trip to Monte Carlo if you're neck-deep in debt. It doesn't mean you have to pay all your debts at once.
Dash advises that debt payments that take up more than half of your monthly income require urgent restructuring. Payments should ideally eat up only about 15 to 20 per cent of what you make.
"It is always a good idea to reduce any debt that you have. Start by paying down the debt that has the highest interest rate first, then work your way down the ladder," said Thomas.
To make this process easier, start by listing all your debts and organise according to their interest rate. "Those with the highest rates, such as credit card debt, should be paid off immediately," added Reza Nader -Sepahi, board adviser at Nexus Insurance Brokers.
Spare some emergency cash
Most people don't have funds set aside for emergencies or unexpected life events. According to a study by the Investor Education Foundation, only less than half (49 per cent) of Americans have funds to cover expenses for three months in case of sickness, job loss, economic downturn or other emergencies.
Among the 18-29 age group, 31 per cent have emergency money while only 26 per cent of those with annual incomes below $25,000 (Dh91,833) have such funds. This clearly illustrates that many people don't have sufficient financial resources to fall back on if they were faced with sudden economic difficulty.
As you enter the New Year, it is therefore vital that you start building your emergency fund. "It is important to ensure you have cash on deposit to take account of any unplanned capital expenditure which you may incur such as a car repair," advises Lord. "As a rule of thumb, you should have three to six months' worth of disposable income on deposit as an emergency fund so if you have not yet managed to accumulate sufficient cash to meet this need, make this a new year's resolution."
Thomas added: "That way, as and when you do have an unexpected surprise, it will not affect your financial situation too badly."
Get the most of your savings
If you want next year to be more prosperous for you, you need to take a serious look at your nest egg. Having emergency money is not enough. Set aside some funds you could use in the future, whether for your own wedding, your child's education or your vacation home.
Keep in mind that a reasonable rate of return can help maximise the amount you're able to save, so if you have money in the bank, review the terms of your accounts and look for better interest rates.
"Do they remain the most competitive but also suitable for you? Could you get a better interest rate with an alternative banking institution? Globally, interest rates remain low and therefore, it is important to ensure that you maximise the interest rates you are receiving on cash deposit," said Lord. Also, don't forget to consider the financial security or credit rating of the institution you are banking with.
But if you haven't started the habit of saving, make it your priority to initiate auto-withdrawal transfers into a savings account. "Arrange for your bank to set up automatic, regular savings deposits by electronically transferring a fixed amount of money on a certain date from your checking account into your savings vehicle each month. This is a great way to start saving because it forces you to better budget your spending," said Sepahi.
Plan your retirement
No matter how young you are, you need to start planning your own future. Most people wait until they are old before they start worrying about their retirement years. If you're one of them, now is the best time to explore different options and map out a strategy on how you can retire comfortably.
The Employee Benefit Research Institute, an independent non-profit organisation, cited in a March 2010 report that more than a quarter (27 per cent) of Americans have less than $1,000 in their retirement pot, while 54 per cent have less than $25,000. The number of workers who have virtually no money in savings and investments has increased.
"While markets are as volatile as they are at the moment, it is easy to use this as an excuse not to start planning for the future, but arguably, it can be viewed as a buying opportunity, and a good time to start planning," says Thomas.
"Also, time passes very quickly, and you can soon be in a position where you do not have very long to save enough money to give you a comfortable retirement."
Be money savvy
One of the great gifts you can give yourself in 2012 is the gift of knowledge. You don't need to be the next top financial adviser in the market, but it helps to know a little bit about finance. Check out some finance reading materials to brush up on your money skills.
"You'll find many excellent books, magazines and newspapers available focusing on fin-ancial, investment, economics, accounting, business and management topics. A few hours of targeted reading each week could improve your financial understanding over the long term as well as give you plenty to talk about at the next dinner party you attend," said Sepahi.
It would also help if you're adept with money technology tools. "Use personal finance software to help you keep track of all those day-to-day purchases and review your entries on a monthly basis. You may be amazed at the amount of money you spend each year on small items like that morning cup of coffee," added Sepahi.
Meet your financial adviser
Sepahi says it is essential that your resolutions include consulting with an independent financial adviser. They will help assess your financial history and in the process review areas such as any tax returns, investments, retirement plan, will and insurance policies. The adviser will be able to identify areas where you may need more expertise, such as boosting your retirement income or improving your investment returns.
"Your independent financial adviser (IFA) can assist you to create a personalized financial plan based on your specific needs or situation. They can help you implement this plan, which may involve referring you to specialists such as accountants or attorneys, if necessary. Your IFA can also help determine your appropriate level of financial risk and manage a portfolio at the risk level," said Sepahi.
