The start of a new year is a good time to focus on your finances. Here are 12 resolutions, one for each month of 2016:
1. Draw up a budget and track your spending. In his blog, “10-point financial checklist for 2016”, the most recent winner of the Financial Planner of the Year Award, Wouter Fourie, says you need to know where your money is going. Budgeting is the most important step in identifying where you can spend less and where you can save. January is a good time to review your budget if you receive an increase that takes effect from January 1. In addition, many fixed expenses, such as school fees, increase in the new year.
2. Check that you are paying only as much tax as you need to. If you contribute more to your retirement savings, could you pay less tax? Assess whether you will owe the South African Revenue Service tax at the end of the tax year and provide for any future tax liability. Diarise the dates by which you have to file your tax returns so that you do not miss these deadlines and incur penalties.
In February, new tax rates will be announced in the Budget, and these will take effect from March 1, so this may be a good month to do a tax review.
3. Plan to tackle your debts. Your first goal should be to reduce short-term debt, such as credit card debt, an overdraft, a personal loan or store card credit, because this debt attracts the highest interest. Make additional repayments until you pay off these loans. Then tackle longer-term debt, such as your car or home loan, and reduce these as quickly as you can.
4. Review your life cover. Assess your life cover and what will happen if you are temporarily or permanently disabled, die prematurely, or contract a severe illness such as cancer. Check your own policies and those with your retirement fund or group life scheme to see how much cover you have for these events, and what the exclusions and waiting periods are. You may have to top up your cover.
5. Check your medical cover. If you regularly run out of funds in your medical savings account during the year, you need to set aside more money each month for medical expenses, or you could consider upgrading your medical scheme cover. Also check out the benefits of a gap-cover policy that provides cover for gaps in your in-hospital cover for the cost of specialists.
6. Start a savings plan. Fourie suggests you set up a savings plan and pay yourself first. Regular payments into your savings account or investment should be the first thing that comes off your salary every month. You won’t miss money that you don’t see, he says.
7. Set short- and long-term goals. Fourie says whether you want to be debt-free in 10 years or own a house in five, you’re more inclined to save if you have specific goals. So write them down and determine how much money you’ll have to save each month to reach them, he says.
8. Boost your retirement savings. This is a good year in which to review your retirement plan, because higher tax deductions for contributions to retirement funds will take effect on March 1. Find out how much retirement income your savings are likely to provide, and assess by how much you can afford to increase your savings and to what extent you can take advantage of the new tax incentives.
9. Update your short-term insurance. When last did you do an inventory of your household contents or add the value of new items to your all-risks cover? Has your motor vehicle insurance policy been adjusted for depreciation in the value of your car? Has your homeowner’s insurance been updated to account for the increase in the cost of rebuilding your home?
You may benefit from seeing whether you can obtain more cost-effective cover from another insurer, but check the fine print for exclusions and excesses to ensure you are making a like-for-like comparison.
10. Make (or update) your will. If you die without a will, you may create problems for your dependants. Make sure you have updated your will if your assets have increased or your family’s circumstances have changed. Don’t forget to list dependants or beneficiaries for your retirement fund savings. Also, establish what cash your estate will need to pay your debts, so that your executor will not be forced to sell assets to pay these.
11. Rebalance your investment portfolio. Check that your asset allocation will be able to achieve your investment goals, Fourie says.
12. Check your credit report. Each year you are entitled to a free copy of your credit report, which shows your debts and how promptly you pay your bills. A good credit record is important if you want to borrow money, open accounts, or rent property. It is also important to check your credit report to ensure you are not a victim of identity theft.