It is a commonly perceived notion that the year-end is the best time to get your finances in place. Get your money act together by making these five financial moves before the year ends.
Have you been paying your Credit Card dues on time? How many new loans have you added to your kitty? How does your investment portfolio look? Have you achieved any of your financial goals?
Yet another year is coming to a close. But before you gear up to welcome the new year with pomp and splendour, we'd suggest that you take some time to assess the year gone by, especially with regards to your finances. Trust us, it isn't a gargantuan task.
We'll help you get a head start. Here are five financial moves that you must make (if you haven't already) before the year ends if you want to be financially sorted for the future.
WHAT'S THE STATUS OF YOUR FINANCIAL GOALS?
You'd have charted out your financial goals (or so, we assume). How far have you reached in terms of achieving them? We get it that some of your goals are long term and, hence, would take a while to achieve. However, you must have set up some short-term goals too, right?
Block a few hours over the weekend to just review the status of your goals. This will help you understand what's been working, what's not on track, etc. Plus, doing this exercise can help you prioritise your goals or set new ones for the coming year.
REVISIT YOUR BUDGET
You have a budget in place, don't you? In case, you don't, you better start working on one.
For those of you who have a budget in place, it is important that you quickly review your budget before the year ends. Here are a few questions to ask yourself:
- Have you been sticking to your budget?
- Did you have too many unexplained expenses?
- Were you able to save enough after catering to your expenses?
- Are there any unnecessary expenses that can be cut?
Reviewing your budget can help you understand where you've been spending and if your priorities are in place or not. Based on your review, you can rework your budget for the next year to maximise savings.
EVALUATE YOUR DEBTS AND PAY-OFF STRATEGY
Not trying to be cliched here, but too many debts are harmful to your financial health. So, what's your debt situation like? How many loans and Credit Cards do you have? Have you been paying your dues without fail? Have you borrowed money from family or close pals?
Well, buddy, it's time to take complete control of your finances! Here's how to go about it:
- The paycheck-to-paycheck habit isn't good for your finances. Learn to live within your means. Change the way you spend, cut down on expenses, and dedicate more of your income towards clearing debts and savings.
- A maxed-out Credit Card? Too many loans on your plate already? Aim to clear your debts. No more taking new debts, even if it means you gotta leave your Credit Card hidden somewhere in your cupboard.
- Check your credit report and Credit Score. Is it messed up? It's time you focused on repairing your credit. Remember a good Credit Score and a clean credit record is important for your financial future.
RE-BALANCE YOUR INVESTMENT PORTFOLIO
If you want to be wealthy, you have got to invest. There's no shortcut here - other than maybe winning the lottery, but that again depends on chance.
Re-balancing your investment portfolio at least once a year is a must. And what better time to do it than at the end of the year. Re-balancing your portfolio is basically like tuning up your car; you're going to have to reshuffle your asset allocation to bring back the original mix. Get it?
Let us explain investment re-balancing with an example:
Let's assume that your investment portfolio at the start of the year consisted of 70 per cent stocks and 30 per cent bonds. Over the last 10 months, probably your stock investments performed exceptionally well, while your bonds didn't do quite well.
Now, your allocation may now be 90 per cent stocks and the remaining in bonds. Basically, your portfolio is out of balance and exposed to higher risks, as compared to your original allocation. Doing a re-balancing gets your portfolio back to its original state.
However, you must re-balance your portfolio only if your financial objectives haven't changed. Else, you may want to consider changing your asset allocation.
P.S. You can always get the help of a financial planner if you think you can't handle your investments on your own.
REVIEW YOUR INSURANCE
Change is an inevitable part of life. Getting an adequate amount of insurance can help you tide through changes and life's occasional shocks. So, it's a good idea to review your insurance at least once a year to accommodate any changes in circumstances. Changes can be anything from getting married/divorced to having a child to buying a new house. Based on the magnitude of the change, you may even want to consider increasing your insurance cover.
And last, but not the least, invest in something that you like. Hit a gym and get your dream body. Go on short trips across the country every alternate month. Plan a long international holiday. Pursue a hobby. Start your own business. Whatever it is that interests you, invest in it.
This article was first published on BankBazaar.