Money Makeover

It’s that time of year again where everyone sets new years resolutions they will abandon in less than a month, the time where you are pressured to give an answer to the daunting question “so, what is your new years resolution?” What if this year you set a new years resolution to keep your new years resolution by setting a schedule to take at least one action towards achieving it everyday even if it is as simple as a phone call and revisit it twice a week while making yourself accountable o someone who will support you, get a mentor who has already achieved what you desire. Is your goal to achieve financial success and get your finances evolving into a reciprocal stream that offers you opportunities for multiple streams of income? If your answer is yes then let’s begin your money makeover. With you in mind I have put together a list of the 10 essential resolutions that you need to make this year to get a firm grip on your finances, work out a cost-effective way of managing your debt, and make the most of any savings.

1. Get your finances sorted

Spend time getting details of every bank account, savings account, vehicle loan, mortgage/rent, credit card agreement, insurance policy, and pension that are in your name. To help with tracking missing assets down you can use the Unclaimed Assets Register (http://www.unclaimed.com/ in the united states and governing countries) or (www.uar.co.uk for a fee of £25 per search.)

List all your assets and liabilities, ideally using a basic spreadsheet as this will not only enable you to see at a glance whether your finances are healthy or in crisis, but also assess the potential impact of any changes made to your income or expenses.

This exercise will give you a detailed insight into your finances and could highlight discrepancies such as being double insured. For example, your mobile phone might already be covered on your home contents policy so a separate dedicated policy will be a waste of money.

2. Reorganize your debt

How much do you owe on credit cards and what rate of interest are you paying? Do you have any other outstanding loans? Have you been sweet-talked into opening up store cards that are charging eye-watering high sums for the privilege?

Clearing your debts, especially credit cards and overdrafts, should always be a priority and be willing to ask for interest reduction because more often than not companies will accommodate you for various reasons such as to make payments easier on you, to keep you as a loyal client or both. “Check that any debt you have is as inexpensive as possible by checking and comparing APRs and potentially consolidating various debts into a cost saving personal loan from a bank.

Existing credit card debts, for example, can be moved to rival providers offering 0 per cent on balance transactions. However, you’ll need to bear in mind that you’ll be charged a handling fee, a percentage of the existing debt, to take advantage of such an offer.

3. Analyze your expenditure

Every organization needs a balance sheet and a household is not any different. Using the spreadsheet you made for your first resolution, start by analyzing how much you are spending each month, including noting what happens to cash withdrawals, says Justin Modray, founder of website Candid Money.

“If you’re consistently spending less than you earn, that’s a good start,” he says. “If you’re spending more than you earn you’ll definitely need to make some cutbacks or seek out better deals. There’s no magic solution so agree where to cut back and be disciplined.”

Divide your monthly expenditure into essentials, such as mortgage repayments, and non-essentials, including meals out, and make cuts wherever possible without completely depriving yourself. Always pay yourself first by placing a minimum of 20.00 or 20% whichever is greater into a CD or money market account where the investment earns slow and steady.

Also, identify agreements, such as direct debits for magazines you no longer read, and cancel them, paying attention to notice periods.

4. Become a smart shopper

For those items you still need the answer is to shop around for less expensive deals. Bargain hard with retailers if you need to buy big-ticket items, such as televisions, and use online comparison sites to find the best prices on everything from cars to pairs of shoes.

There are plenty of other ways to save money. For example, it is worth picking up loyalty cards in favorite stores on which you can earn and later redeem points for buying certain products. Pay particular attention to buy-one-get-one-free deals on favorite items.

Such attention to detail can be applied to other products, such as insurance policies. You can save a lot of money by researching the market to see what’s available well in advance of the renewal date of various policies. Check comparison sites and individual firms for the best deals.

5. Establish your financial goals

Before deciding what investments will meet your needs you will need to establish how much money you need to make and what aspirations you have for the future, according to Jason Witcombe, a director of Evolve Financial Planning.

Think about what you want from your life, not just next year but in the decades to come, and what is important to you and your family. Few people actually do this and without taking time to prioritize it’s very easy to get stuck in the daily grind in which you will find yourself right in the same financial stranglehold until you take action and make the decision to begin income-producing activities.

Knowing what you want out of your life and, perhaps even more importantly, what it’s likely to cost will help you establish how much risk you are willing to take with your money and which investments are likely to best meet your needs.

6. Set up an emergency fund

You never know when a crisis will happen, anything from your boiler breaking down to a member of your family needing an operation, so it’s best to be financially prepared to avoid plunging into debt to solve the problem.

Everyone should build up cash savings before looking at higher-risk options such as investing in shares. It is sensible to try and get a good return on your cash savings and you can do this by looking for accounts that are paying competitive rates of interest and holding the money in a money market account (if you live in Europe a cash ISA,) where all interest generated is free of tax.

Look for the account that gives you a competitive rate of interest and lets you get your hands on the money quickly. If you have used your MMA or ISA allowances then consider an instant-access savings account with a high street bank or building society.

7. Plan for the longer term

While 30 percent of people quizzed in a recent study for Financial Planning Week were planning to reduce their monthly spending next year and 20 percent to increase the amount they put away, only a small four percent were planning to contribute more towards, or start, a pension.

It’s not a surprise to John Ions, chief executive of Liontrust.

It is not difficult to understand why so many people who are struggling to make ends meet today have little focus on tomorrow. This is why it is so important to communicate the message that doing something now is vital to provide more security in later years.

The fact is that the earlier you start saving for your future the greater the opportunity you are giving the funds to grow in value. At the very least start building up a pot of money in a MMA or an ISA and other accounts, even if you distrust investments and don’t want to tie up every last penny.

8. Make sure you’re tax efficient

Many people are paying too much income tax, which is dictated by which tax code they have been assigned. Check to see if you’re paying the right amount by contacting the IRS (http://www.irs.gov/pub/irs-pdf/p15.pdf) or HM Revenue & Customs (http://www.hmrc.gov.uk/incometax/check-right-tax.htm).

Once you have done this you can turn your attention to making sure your money is in tax-efficient wrappers, such as the aforementioned MMA’S and/or ISA’s.

There are other tax planning techniques too, For example, husbands and wives (as well as civil partners) are taxed independently so each will have their own personal allowances. If they are on different tax rates then consider moving assets to the one paying a lower rate.

9. Keep track of your investments

It’s important to regularly review the performance of your investments, with the most important factors being whether they’ve made you money and how well they have done in comparison with rivals. Keep track of them and learn to understand what has caused the outperformance or underperformance. Jason Hollands, a managing director at Bestinvest, said a study the firm recently carried out with YouGov revealed that one in five people have never re-examined their investments. “Review your portfolio before putting any new cash into the market,” he insists.

10. Revisit your decisions

If you’ve reached this stage then congratulate yourself on beginning your financial makeover. Stand vigilant, revisit your investment decisions at least once a week and keep an eye on your expenses. Review your finances and enjoy the year ahead.

It takes less than an hour a week to remain on top of your assets, which will prove time very well spent because of what you gain.

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