Get Your Finances in Order

 

While you’re filling up your PDA with “eat better, exercise more and work less!” New Year resolutions, it’s also a great time to take stock of money matters and determine what kind of financial shape you’re in. 

Says Annette King, chief marketing and strategy officer, AXA Life Insurance Singapore: “You’re fiscally fit if you have enough cash on hand to pay for regular expenses for the next three to six months, the basic financial protection (insurance coverage for death and  disability, critical illness, hospitalisation, etc) for yourself and your dependants, as well as  a savings plan to meet mid- and long-term financial goals”. Not quite there yet? There’s no better time than now to face your money demons and get your financial house in order.

1. Reflect on your finances
Build a rough balance sheet of assets (cash, savings and checking accounts, investments, property, car, etc) and liabilities (credit card debt, housing and loans, study loans, etc) to know where you stand. While doing this, dig deep and be honest when posing these questions to yourself: Have you met your financial goals the past year? Are your current spending and saving habits helping you achieve financial freedom? Do you need to keep a better rein on expenditure?

2. Don’t go crazy with your annual bonus
Before you blow the year-end bonus and salary increment in one place, set aside some of it towards your savings and investments. It’s a commitment as good as any to getting serious about your money in the New Year. If you have debts to pay, seek the expertise of a financial planner so that he or she may help you to develop a loan repayment plan that optimises your assets and resources, advises Annette.

3. Set goals for the next three to five years
Assess your current situation and see if your financial or lifestyle goals have changed. Perhaps you’re considering taking a year off work to travel, or plan to do an MBA in two years. Or you may be planning to start a family or buy a new home. Says Annette: “These changes will have an impact on your cash flow and you will need to start setting money aside to meet these goals.”

4. Determine your retirement goals
A clear message that has emerged from all the talk surrounding this year’s CPF reforms is that it’s never too early to plan for your retirement. If you’re envisioning your silver years filled with frequent travel or the pursuit of particular passions and hobbies, monetise each of these goals so you’ll know how much you’ll need when you get there, as well as how much to set aside now in order to fulfill them. It is worthwhile consulting with a financial advisor to work out your retirement goals and help put together a savings and investment plan that matches your needs and your risk appetite.

5. Organise a budget
If your spending habits in the past year leave much to be desired, it’s high time you came up with a budget for yourself – and stick to it. To do this, keep a daily record of all your spending for a month. At the end of it, break down your spending into different categories such as fixed, entertainment, shopping, food, and transportation expenses.  Once you have a clear idea where your money is going, it’s easier to decide which areas you can cut back on and how to channel the excesses to your savings and investments. Seen this way, a budget isn’t so much a restriction on your spending as it is a clearly mapped out strategy for where your money should be going. Finally, even though you should make it a point to review your financial situation on an annual basis, you don’t have to wait another 12 months to revisit the books. “You’d consult the doctor each time you feel ill. The same principle applies to ‘spring-cleaning’ your finances,” suggests Annette. “Make it a point to meet with your financial planner whenever there are any major life changes.”

Source: Man's Health

Why your pay disappears so fast?

The end of the month usually brings joy because it signals pay-day. However, that happiness - and your bank account - quickly deflates once you start clearing your stack of bills. While most of your expenses are likely to be items such as utilities or handphone bills, it's the silent suckers that you need to be careful about.

Watch out for these four common money traps and learn to avoid them:

1. Multiple credit cards

A credit card is merely an efficient means of paying for your expenses. Don't treat your Visa as a line of credit and never draw a cash advance from it: You’ll be paying a service fee on top of daily interest charges.

You only really need just one credit card. Get rid of infrequently used credit cards as you run the risk of incurring annual fees or missing occasional payments on cards you seldom use. “Also, try asking your bank to waive the annual fee and whether they can reduce the interest rate,” says Adam Martin, vice-president of Ipac Financial Planning. Banks may often be willing to accommodate such requests, especially for their loyal customers.

2. Personal credit lines

“A line of credit can be especially helpful in covering fluctuations in cash flow,” says Choo Koon Lip, founder of Forex Asia Academy. Just like excess credit cards, however, it can be disastrous when one has difficulty paying on time, he advises. Keep as few of these open and pay them off quickly. They can be kept for emergencies, but should not be used for general or impulse purchases.

Drop your credit lines if you’re not using them in order to keep them at bay. If you’re already in debt, Martin advises that you look at refinancing to another product with an introductory low-interest rate, committing to a regular repayment programme and sticking to it. Once that’s paid off, close it down.

3. Unnecessary Giro payments

The convenience of paying bills by Giro can be outweighed by the fees charged for unsuccessful Giro deductions. Moreover, they take the control of payments out of your hands and require you to monitor your account to ensure a sufficient balance on deduction days, which might not coincide with your pay day.

It's better to switch your monthly bill payments to your (single) credit card wherever possible. For organizations where this is not possible, Giro can still be useful. Choo advises consumers in these circumstances to keep tab of their expenses so as to avoid extra charges.

4. Too many reward programmes

Nearly every credit card has some kind of reward programme, but dividing your loyalty among them can significantly reduce their value. Stick to one programme linked to the credit card of your choice and make full use of it. But be mindful: rewards can come at a price. “This price is generally made up in the area of higher rates of interest,” says Joy Chia, associate financial consultant at Harold Ng & Associates. “Therefore, it’s important to understand all the terms and conditions when it comes to reward cards. You need to make sure that your needs are met.”

Stick to the one that’s linked to the card you actually use or would really like to enjoy, for the lowest cost or with the least burden. Consolidate points where possible, as the value of the reward often increases as more points are accumulated.

Manage your credit card debts

While Singaporeans can give themselves a big ol’ pat on the back for reducing credit card debt to a five-year low (only $8.7 million was written off as bad debt by banks in January this year compared to $18.9mil in 2004) there’s no denying that there’s been a surge in the credit card take-up rate. According to a report by the Monetary Authority of Singapore, credit cards in circulation numbered 5.1 million early this year, compared to just 2.8 million some five years ago. Last year, Citibank launched the world’s first cardless payment system in Singapore, allowing consumers to pay for goods and services with a tap of a finger on a biometric scanner. Faced with the tempting prospect of being able to foot bills with a Bond-esque finger swipe, what’s a guy saddled with debt to do? Have a plan and stick to it, come hell or high water.

Stop the bad behaviour
Sheer willpower will only get you so far. It takes a strategic plan to eliminate debt and the first step in that plan is putting a stop to the bad money habits that got you in the red in the first place. In other words, eliminate debt by not creating more debt. Unbridled spending when you’re already saddled with debt has you rolling over more debt each time you can’t pay it off. Punitive compounding interest rates, late payment fees and overdraft penalties all add up – creating a vicious cycle that results in a ballooning mountain of debt.

Track your spending
Often, it’s not the big ticket or emergency spending but the unchecked small expenses that land us in debt. If you set aside the $10 that you might’ve spent on a fancy latte, cigarettes, or snacks every day, you’d have, by the end of the year, $3,600 to go towards repaying your debt. David Bach, author of The Automatic Millionaire, calls this the ‘The Latte Factor’; unconscious daily spending on small items that could go towards a savings or investment plan, or paying off debts. The earlier you apply the Latte Factor to paying off debt, the faster you’ll climb out of it.

Pay more than you have to
Don’t get lured into the false security of making only the minimum payments each month. Aiming higher can make a huge difference to how long your debt drags on. An $8,000 debt with a minimum payment of $160 each month, at an interest rate of 16 per cent takes 30 years to pay off. If you aim to pay almost twice the minimum, say $300 each month, the debt will take only three years to pay off. See the difference?

Get smart with interest
Compounding interest rates are your best friend when you’re growing your wealth but in debt, they’re your biggest enemy. Several ways to keep punitive rates from blowing up your debt balance:
• If you have debts on multiple credit cards, transfer all your balances to the one with the lowest interest rates.
• If you own a life insurance policy with cash value, borrow against the policy. Creating debt to service another may not seem like a prudent thing to do, but it makes sense if one interest rate is much lower than the other, as they often are on life insurance policies.
• Alternatively, get tough and call your credit card company to ask for a reduction in rates. With the competition among credit card companies, you can get your rates lowered by simply asking. Jean Chatzky, personal finance expert and author of Pay It Down!: From Debt to Wealth on $10 a Day, even has a simple script for you to follow on http://www/oprah.com (yes, even she approves) when on the phone with a rep from the credit card company.

Don't worry, be wealthy

Your year-end bonus, if you're even getting one, is paltry. That's bad news with the coming holiday season. You've got bills to pay, your credit-card debt is piling up, the girlfriend is bugging you to bring her on a holiday, and there are Christmaspresents to buy. You're totally stressing out, but here's the good news: All you need to do is master your money and the anxiety it's been buying, and it can all go away. The Stress: Credit-Card Debt The Solution: Start Small First, the obvious: Lower your interest rate. Do your homework and find out which banks are offering lowered interest for transferring your balances from your other plastic. Take advantage of the lower rates and pay back the arrears promptly. Pay your debt faster, says David Bach, author of The Automatic Millionaire by adding $10 a day to your minimum payment and $10,000 in debt will disappear in less than two years (assuming an additional $250 per month minimum payment). The Stress: Your Paltry Retirement Fund The Solution: Simplify, Diversify Follow this simple retire-rich guideline: Invest an hour's worth of income per day in your post-work life. That's 12 per cent of our gross earnings for a 40-hour week. Add that to your CPF and you could be looking at a smooth ride, 65 and beyond. The Stress: Asking For A Raise The Solution: Smile Business proposals are twice as successful when they're offered by people displaying positive emotions. So when proposing your boost, point everyone's attention to tangible things that demonstrate your loyalty. You don't want to have any negative emotion in the room. The Stress: Costly Vacation The Solution: Schedule Smarter Taking off-season trips can cut vacation costs by more than half, says Rick Steves, author of Europethrough the Back Door. If your schedule isn't dependant on your kids' school holidays, plan trips for those off-peak months, like April or August. Flights and accomodation are usually cheaper during those times. The Stress: Bad Investment Advice (Yours) The Solution: Take Risks Set aside 10 per cent of your money for investment hunches. It's okay to yield to the temptation to gamble, as long as you only give in a little bit. With the remaining 90 per cent, invest in low-to-medium-risk international funds and bonds. You'll sleep easier.