As the year draws to a close…look back on how you’ve done financially over the past year; take stock, review your mistakes and successes and put a plan in place to do better in 2012.
It’s time for Your Annual Check – Up
Are you one of those people that postpone scheduling your annual dental check-up? The result of not having a regular check up means that you may end up having a painful emergency that will cost a lot more than it would have done if only you’d gone for a routine check and filled a growing cavity before it required a root canal. Regular checkups are as important for your physical well being as they are for your financial wellbeing.
What changed for you in 2011? Did you start a new job or leave a job? Did you get married this year? Did you start a family? Did you retire? Did you get divorced? Did you lose a loved one? Whether there have been notable changes in your personal or professional life, or even if it has been relatively uneventful, your personal finances need regular attention. I recommend a complete review or analysis at least once a year to get a clear view of your current financial situation.
As the year draws to a close, it is a good time to look back on how you’ve done financially over the past year; take stock, review your mistakes and successes and put a plan in place to do better in 2012.
Below are ten points to consider as you analyse your current financial position.
● Very Good ● Adequate ● Weak
Use the green, yellow and red dots to evaluate where you are. A green dot indicates that you have made good progress. A yellow dot suggests that whilst you may have made some progress in some areas, you are still limping along in others and can do better. A red dot means you face real challenges with your finances and you need to get back on track in 2012.
1. Review Your Goals ● ● ●
You probably set some goals early in the year, either as part of a New Year Resolution or just to try to get some order into certain aspects of your life. What were your goals for 2011? As you look back on the year, you will probably find that you reached or exceeded some of your goals. You will also find that you fell short on others.
Even if you failed to reach any of your goals, assess your situation to ensure that this does not happen in 2012. By reviewing your goals, and considering your successes and failures you can have a huge impact on your financial life.
Major life changes such as getting married, having children, retiring, buying a house, getting a significant promotion or a bonus or even winning the lottery, will have an impact and you may need to make some adjustments to your savings, spending, or investments to keep your plans on track.
2. Financial Plan ● ● ●
Do you have a financial plan? It is important to have a written personal financial plan in place with your short and long term goals clearly stated and with assigned time frames. A personal financial plan covers several areas including credit, savings and investments, insurance and estate planning. Ideally you should be aiming for a balanced score card where all areas are receiving adequate attention.
3. Where are your documents?
All your difficult to replace legal and financial documents should be stored in a safe and fireproof location. Documents you should store include wills, trusts, powers of attorney, titles of ownership for your home, cars, etc. Birth, marriage and death certificates passports, lists of personal possessions should all be kept securely. Do you know where your important documents are?
4. Emergency Fund ● ● ●
One of the first steps to financial security is to build an emergency fund. How much money do you have in the bank? How much did you save this year?
Ideally you should have at least three to six months of your monthly income saved in cash or in the money market. Cash from your thirteenth month salary or an end of year bonus could kick-start an emergency fund that you have been battling to establish all year.
If you have no cash savings at all, and you suddenly become unemployed, or need to pay large medical bills you could be very vulnerable. If you are saving more than 10 percent of your gross salary in investments over and above what you put aside for your tithes and your retirement plan, that is a good sign. If you have no savings at all, it is worrisome.
5. Budgeting ● ● ●
Where does all your money go? Have you managed to keep your household spending under control? Do you have a working budget in place? Write down all your income and all your essential expenses. If you have been living more or less within your means and try to stick to a household budget, give yourself a green dot. A yellow dot shows some effort in this regard but where there is always more month at the end of the money, give yourself a red dot.
6. Debt ● ● ●
If you are like the average Nigerian you are probably carrying some sort of debt; this might be a bank loan, or borrowings from family, friends or your community club. Are you in debt? How much do you know about your car loan, or your home loan? What is the interest rate on your mortgage? Have you tried to have it reduced? Even a small reduction in the interest rate can make a big difference over the life of your mortgage or other long-term loans.
How you deal with your debt will have a big impact on your financial future. It is important to list out all your debt at the end of the year so that you can devise a plan on how to keep it under control and ultimately pay it off.
Your borrowing behaviour affects the lenders attitude towards you now and in future. If you have had a good credit history, you will be in a good position to negotiate for new loans at good rates and should give yourself a green. If you have been a little delinquent or lax and caused your lenders some concern, this may have weakened your profile somewhat, and you should give yourself a yellow. If you have been defaulting on your interest payments you deserve a red dot.
7. Investments ● ● ●
What is the return on your stock, bond, or mutual fund investments? Are you satisfied with their performance or is it time to make some changes? Consolidate your investments among one or two strong institutions where you can monitor your progress more efficiently.
Are you sure that your investments are properly diversified and that they are the right vehicles to help you achieve your short and long term investment goals. If you are you too heavily weighted in one asset class, plan to rebalance your portfolio over a period of time.
8. Retirement Plans ● ● ●
Ideally, you should have started planning for your retirement as soon as you started your first job as starting at a younger age naturally gives you more time to put away a significant fund. If you are older, and retirement is looming, don’t despair; there are still ways you can make up for lost time. What’s important is to get started and the sooner the better.
If you are employed, you should be registered with a Pension Fund Administrator or have a retirement plan in place to ensure that you have enough to live on in your later years.
9. Review your insurance policies ● ● ●
Your age, family situation, health, and goals will influence the level of risk you can tolerate and the level of insurance you take on. At least once each year gather your insurance records and review the adequacy of your coverage. Be sure to evaluate all your insurance cover including health, life insurance, homeowners insurance, auto insurance, renters insurance, etc and determine what changes might be required fro the coming year.
If you have a comprehensive medical and health insurance plan that covers you and your family, and your car, home or other valuable personal property are up to date, give yourself a green dot. Not being up to date with your insurance makes you vulnerable to unexpected disasters or a sudden change in your circumstances resulting in a loss of earnings, or wealth. You deserve a red dot for this.
10. Estate Plans ● ● ●
Do you have a will or trust or some other vehicle that could ensure that your loved ones are protected in the event of their incapacity or demise. If you do have an estate plan, when last did you review it? Does your will still fairly reflect your personal wishes for the distribution of your assets? Have the personal or financial circumstances or your beneficiaries significantly changed over the past year? Keep your will up to date and make sure that other people know where it is.
If you have something in place, give yourself a green. A partial plan shows you have some intentions. Give yourself a yellow dot but do not keep procrastinating; follow the plans through. If you have nothing in place, you are placing your family and heirs in financial risk and deserve a bright red dot.
11. Giving ● ● ●
Have you been a blessing to others this year? What have you done or what have you given away? Even if you scored a red dot now, you can still make it green before the end of the year. Give back just a little of what you have received. You will be blessed by this. The joy of giving is the greatest investment of all.
Your annual check-up helps you to be proactive so that you can spot potential problems before they fester and become real problems that you must react to. It should throw up areas of concern so that you can begin to pay some attention to these. Think about what you can do to improve in each area. You don’t have to tackle them all at once; even a small step in the right direction could help you financially. The result is financial success and independence now, and in the future. Make the time, no matter how busy you are; take just a few hours out of your busy holiday schedule and focus on your finances. You will feel much better about your finances as you head into the New Year.27/12/2011 by Mrs Nimi Akinkugbe, Introducing our Lagosmums money management and financial specialist. For further questions or advise you can email [email protected]