FINANCIAL RESOLUTIONS FOR THE NEW YEAR

Have you made your resolutions for the new year? If not, take a minute to answer the following questions:

a. Do you keep track of how your money is being spent every month?
b. Do you pay your credit card bill in full every month?
c. Have you started putting aside money to build your retirement nest egg?
d. Do you understand the financial statements which your financial institution sends you?
e. Do you know what type of insurance policies you have and what type of coverage they provide?

If you have answered "no" to 3 or more of the questions, perhaps it is time you did some spring cleaning of your financial closets! Here are five simple financial resolutions which could help rid you of those nasty cobwebs!

1. Take stock of your financial situation.

• The first step in managing your finances better is to take stock of your financial position by listing down your assets (what you own) and liabilities (what you owe).
• Next, get organized by maintaining files for important documents such as:
  - Credit card statements, and receipts on cash and credit expenditures.
  - Insurance policies and medical receipts.
  - Bank statements, deposit receipts, passbooks and issued / cancelled cheques.
  - Investment documents such as trade confirmations, sales and purchase    
    statements, contract notes and prospectuses.
  - Loan statements and mortgage contracts.
  - CPF statements, income tax returns and payslips.
• One good way of keeping close tabs on your income and expenditure is to set up a budget. You may download a sample budget template here (PDF, 1.82MB).

2. Set SMART financial goals and develop a plan to achieve your goals.

After you have taken stock of your financial position, you may decide to set some financial goals for yourself and come up with a plan to achieve your goals. What is a SMART financial goal?

S - Specific: Set specific targets. Saying that you want to save more is not specific enough. You should specify the exact amount you want to save over a specific time period and work out what it amounts to every month.

M - Measurable: A goal that is measurable enables you to track whether you have been successful in reaching your goal. Having decided how much you want to save, you need to decide how long you are giving yourself to achieve your goal and how you can check whether you are sticking to your plan. For example, if your goal is to save enough money for a downpayment on a new car in a year's time, you can work out how much you should set aside a month in order to achieve your goal.

A - Attainable: Think long term but set smaller goals to help you along the way. Try setting aside a certain percentage of your monthly take-home pay to build up your savings. For example, if you want to save $3,000 in one year, you should put aside $250 (a smaller goal) a month for the next 12 months.

R - Realistic: Setting unrealistic goals is a sure recipe for failure. Set goals that you are able to achieve. An example of an unrealistic goal is aiming for a 50% return on your investments every year.

T - Tangible: A tangible goal is something that is real, definite and measurable. You would be motivated to set higher goals once you have achieved your initial goals.

Involve your family members in goal setting as they have a part to play in ensuring that your goals are met. It also helps to write down your goals, and to review them from time to time. 

3. Live within your means.

• The key to achieving your financial goals is learning to live within your means. As far as possible, save for what you want instead of buying on credit.
• Planning to take a loan for a new home or car, for renovation expenses or overseas study? Work out your sums before taking the plunge to make sure that you can meet the financial commitments comfortably on an on-going basis.
• If you need to take a loan, shop around for the best deal. Find out the terms and conditions of the loan, including the fees and charges.
• Build an "emergency" fund if you do not already have one. It will help tide you through a rainy day such as being unemployed. As a guide, you should have at least 3-6 months of your monthly income in the form of cash savings for emergencies.
• If you have a credit card, pay off your credit card debts promptly. If you choose to pay the minimum sum only, the interest charges will be compounded if you continue to roll over your outstanding balance.
   

4. Review your finances periodically.

• You should review your finances from time to time as your goals are likely to change as you move through different stages of your life. The following are some examples:
  
  - Review your bank account balance e.g. savings accounts and fixed deposits. You 
    should also review the balance in your CPF account to check how much
    retirement savings you have built up.
  - Review your insurance coverage. Are your policies sufficient to meet your family's
    needs if anything unexpected should happen to you?
  - Review your investments if you have any. Have your personal circumstances
    changed (e.g. you have retired, your children have grown up, you have just got
    married, bought a new property or changed jobs)? Is there a need to rebalance
    your portfolio to reflect these changes? It may be useful sometimes to speak to a
    professional financial adviser.

5. Educate yourself in financial matters.

• Learn the basics of savings and budgeting, financial planning, insurance and investing. The more knowledgeable you are about financial matters, the less likely you are to make poor financial decisions. The MoneySENSE national financial education programme organizes regular seminars and workshops, and also publishes consumer guides on money matters. You can find out more about MoneySENSE activities here.
• Do your homework and understand what you are buying. If you are unsure about anything, ask questions and do not commit to buying any product until you are sure the product is suitable for you.
• Don't make hasty decisions or fall prey to marketing hype. Anything that sounds too good to be true probably is.
• If you plan to appoint a professional financial adviser to manage your finances, deal with a person who is regulated by the Monetary Authority of Singapore (MAS). Check their licensing status on the MAS website (www.mas.gov.sg under "Financial Institutions Directory") as well as their track record and experience.

It's time we all took personal responsibility for our own financial well-being. The earlier you plan, the better off you will be as you will have more time to work towards your financial goals.