Review your finances in the new year

The beginning of the year is a good time to review the performance of your investments in the year gone by, and decide what needs to change in the new year


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There is no bad time to review your financial situation. But the new year is a good time to take stock of the year gone by, have a fresh look at your financial situation and make resolutions for the coming year. The review will help you see what you did right and what you can improve, and help you start off the money matters right in the new year.

Keep goals in sight

Review your goals in the new year, as some goals may no longer be relevant or may become less important. Other short-term goals may have to be added to the list. Once you have your goals reaffirmed—make sure that the financial and investment plans are aligned to the goals; and you have clearly identified the financial steps necessary to reach those goals. This is also the stage at which you prioritize the goals: if your resources are not adequate to meet all your goals, ensure that the available resources go towards the more important ones.

Budget for savings

The savings for your goals have to come from your income. See how well you did with your monthly budget, if you had one, in the year gone by. Compare allocations to actual spending on each head of expense in the past year. Use this information to tweak allocations amongst various expenses while ensuring that your saving goals are met.

If you don’t already have a budget then the new year is a good time to bring discipline to your spending with a budget. The savings that you are targeting through the budgeting exercise should be linked to meet the needs of the goals that you have set.

Give debt its due

An important claim on your income, which you have to prioritize in your budget, is repayment of debt. Evaluate your debt situation at the beginning of the new year. Reducing outstanding debt and the proportion of your income assigned to debt repayment, and adding only debt that improves financial security signifies responsibly managing debt. Work on keeping the commitment of your income to debt obligations to under 40%, so that it does not affect your ability to save and invest for your goals.

Protect and preserve

Consider the insurance cover you have and its relevance and adequacy. Life insurance must reflect your current income and expense levels and goals. Therefore you need to do a periodic review to ensure that it is adequate, necessary and not an unnecessary expense. Similarly, health insurance cover must reflect current health needs. Consider other insurance covers too that are relevant, such as home insurance, personal accident insurance and others, depending on your needs.

Fund for emergencies

Your emergency fund should be adequate to meet 3-6 months of your expenses in the event of loss or reduction in regular income. The adequacy of emergency fund will need to be reassessed whenever there is a significant change in the level of expenses and obligations. If you had dipped into the emergency fund in the previous year, make sure you have replenished it. If you do not have an emergency fund, then this is the time to make the resolution to build one and prioritize allocation to this fund from savings before all other goals.

Portfolio review

The new year is also a good time for an annual review of the performance of your investments. Identify consistently underperforming investments that may be pulling down the performance of your portfolio and reallocate the funds to where the money will work harder for you. Check if the goals are on track for being funded as required, which will depend upon the value of your portfolio. If there are likely to be shortfalls, then it is good to know well in advance so that you can look for alternate solutions.

Rebalance the allocation of your investment between equity, debt, physical and cash assets to reflect changes in the investment horizon of your goals and risk tolerance.

Organise the documents

Get all the important documents related to your finances in one place. This includes, among others: investment statements, insurance policies, property documents, tax papers, bills and credit card statements. Digitize the documents and consider options like digi-lockers to reduce the risk of losing important papers. Shred documents that are no longer relevant—such as old credit card statements and investment statements—to reduce clutter. Get a copy of the latest credit report and check for errors and omissions. If you don’t have a Will then make one. If you already have one, then make sure it is up to date on its provisions. Review the nominations that you have made in your investments and make sure they are relevant. Update the address and other personal details in your financial records.

Put systems and processes in place to make it easier for you to manage your money. Sign up for automatic payment of bills, insurance premiums and loan equated monthly instalments (EMIs), so that there is no default. You can also do this for investments.

The idea of a new year appraisal is to make sure that you incorporate the experiences of the past year and continue to build towards your goals. Or, if you have not yet begun work on your goals, then it is a good time for you to take control of your finances. So make sure you allocate some time at the beginning of the new year to a review so that the rest of the year is more financially productive.

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