It’s that time of year once more. In a few hours, you will probably pop a bottle of bubbly and enjoy the fireworks as you bid goodbye to another year and welcome in the new.
Amid the revelry, you will most likely be inspired to declare your New Year’s resolutions. However ambitious and lofty your plans for 2013 will be, make sure you don’t overlook your financial health.
Gulf News has asked the money pros to share with us some insightful tips on how to best kick off the New Year. Depending on your own financial situation, here are the tried and tested ways to ensure you won’t be treading into murky financial waters in the months ahead.
Manage your debt
The local economy may already be out of the woods, yet many residents in the UAE are still neck-deep in debt. If you find yourself in the same dilemma, make it a priority to settle your borrowings before you do anything else. The longer you wait around for a miracle to happen, the more difficult it will be to get out of debt.
“Reducing and ideally clearing debt levels altogether is undoubtedly the primary objective that a large percentage of individuals should focus on. Many people I speak to are so worried about the debt they have built up over time that the only option they feel they have is to ignore the problem altogether,” notes Neil Stewart, senior financial planner at Acuma Independent Financial Advice.
“This really doesn’t have to be the case. My advice is to manage the issue in a simple yet efficient manner,” he adds. Stewart says the first thing you should do is spend some time to calculate how much you owe and to whom.
As the new year is about to start, ask your employer about what your financial horizon will be like in 2013, whether you will get a good fortune for being a good worker, perhaps a wage increase or a bonus, and how much you’re likely going to get. It is important to establish whether or not any salary adjustments will beat inflation, considering that prices normally go up every year.
“Can you expect a wage rise next year and if the answer is yes, will this be in line with inflation or even exceed it? Is the payment of a bonus likely in the coming 12 months? If so, when will this be and how much can you expect to be remunerated,” Stewart asks.
“Once you know the answers to these important financial questions, collate a simple spreadsheet of monthly outgoings aligned to expected income streams. Be honest here – this is essential and leads back to my earlier observation of people ignoring the problem of debt as much as they can.”
The next ideal step will be to talk to your lenders and try to negotiate for an amicable solution that will help you clear your debts in a realistic way. “Don’t be afraid to plead for assistance in terms of reducing the rate of interest you are currently paying. A mutually beneficial agreement is often easier to achieve than many might envisage,” Stewart adds.
Another approach is to overpay your debts by one payment, to buy yourself some time in case you lose your job and so that the banks will stop calling you when you miss your dues and save yourself the late payment fines, says Steve Gregory, managing partner at Holborn Assets.
If it’s impossible to pay up your dues due to exorbitant interest charges, consider transferring your credit card balance to another bank to lower or drop the rates entirely.
“Changing credit card provider could find you a 0 per cent interest deal for some months. Then reduce the outstanding balance by paying the amount you are used to paying off the card balance. For example, a Dh100,000 balance at 5 per cent is Dh5,000 a month. At 0 per cent, it’s nil, but the 5 per cent minimum payment will repay Dh5,000 each month,” says Gregory.
Whatever approach you take, the important thing to remember, advises Clem Chambers, CEO of financial stocks and shares information site ADVFN.com, is that managing your finances requires work and commitment. “It is not fun. In fact, it can be unpleasant if you are in debt. But if you don’t do the work, then your finances are likely to get and stay out of control. As such, to get out of debt, you must commit to working at it,” he says.
It will greatly help if you really make an effort to control or bring down your spending. One way of doing this is to avoid using credit cards and opt to pay in cash instead.
“Ration yourself and others who are spending money,” says Chambers. “People who get into debt tend to spend randomly until they are stopped either by their financial providers or by finding out just how little reserves they have left.”
“Don’t take your credit cards with you. Take cash from an ATM for two or three days spending and leave the plastic behind. Likewise, if your other half is randomly spending the family into debt and if you cancel the card and give them weekly cash, the waste will stop,” Chambers says.
Set up a budget
A new year marks a new beginning and the best way to start it is to take a fresh look at your expenses and have a clear idea of where your money is going in the next 12 months. A budget is a great way to map out your financial goals, be it purchasing a new car, settling all your borrowings or traveling somewhere.
Besides, prices often go up in the beginning of the year. Higher rents and public fares, for example, have become an annual occurrence. New expenses are a part of life and certain financial obligations such as insurance and car registration need to be renewed. It is important that you are prepared for all of these.
“With the economy here in Dubai showing signs of recovery, everything from the cost of cinema ticket to the price of petrol and the rental of where you live is on the increase. Being ahead of the game and keeping one eye on this will certainly do you no harm,” says Stewart.
Review your investment portfolio
Some people go to great lengths to raise money to be able to invest in real estate, stocks, shares, bonds and whatever it is they believe will offer a good return. However, once they have made some investments, they either neglect their portfolio or hold on to it for too long.
Stewart offers a more fitting parallelism for this. “The analogy I often use is that of a landscape gardener taking great pride in their work on day one but leaving that plot of land to its own devices over the coming years. On a financial basis, this can only lead to one thing – an asymmetrical portfolio that is often out-of-sync to an individual’s appetite to risk.”
If you want your money to work harder for you, you need to manage it well and review your strategy on a regular basis. Start the New Year right by taking stock of how well or bad your investments performed in the past year.
“A yearly review of your financial position is always a good move so you can set your course for the following year. A yearly review sets your strategy. However, a monthly check is a great idea too. Think of a monthly review as your tactical finances,” says Chambers.
“There’s a saying that goes, ‘what gets measured gets done,’ and I would even suggest a brief two-month review of your finances is the best way to get your personal economy going well. While most situations are long
