By Sylvia Juuko
Every New Year accords you a fresh opportunity to improve the way you manage your money, particularly the habits that cannot be supported by your current financial state.
It’s also an opportunity to map out how to increase your earning capacity to support any expenses occasioned by your life stages. Some people opt for the old fashioned way of setting New Year resolutions, irrespective of the fact the year closes with no action taken on most items on wish-list .
Recognising the fact that listing down things hasn’t worked in the past, you can consider doing it differently this time round. For a change, set and list the desirable financial targets that are both short and long term, including timelines that are attainable.
Once you have set targets, take a look at your personal financial statement. If your statement is characterised by a single entry at the end of the month, yet dominated by withdrawals, this is an area that needs to change this year. You need to work towards increasing inflows to sustain the necessary expenditures.
If you have no idea what those expenses entailed, tracking your expenses is an aspect that you need to focus on this year.
Once you have scrutinised your statement, there may be mixed results. For some, it may be a statement that you can confidently present to your banker to back a business plan.
On the otherhand, it may be too embarrassing that trashing it appears like the best option. If you fall in the latter category, some drastic and even painful changes need to be made in your household’s lifestyle this year, especially those that cost you money. If you are open minded, engaging your household in frank discussions should be the next step to arrest the situation.
While there are a number of areas that drain your account, costs spent on housing and transport may need reexamining.
Ask yourself if your income can support your current accommodation, particularly those who rent. You may find that you are punching way above your weight. Of course this can be a touchy issue, especially if it involves a decision of switching to cheaper accommodation. How about the cars that you drive, can your current finances pay for the fuel.
You could be better off trading your high fuel consumption car for one that consumes less as opposed to the constant embarrassment of having to borrow to fuel it. Some options may include selling one of the cars or even commuting by public means to live within your means.
This assessment should be done to all the other expenses, including whether you can afford the international schools that your children go to.
Learn from the experts
Interestingly, lifestyle choices drive some parents to the extent of taking loans to finance their children’s trips abroad, in the name of keeping up appearances. You need to do a reality check this year and live the lifestyle that your household income can support.
Once you have control over the lifestyle decisions, it will be easy to draw a list of things that can be done differently starting from this year and beyond. This should be cemented by long term thinking as opposed to survival for today.
This should make decisions like committing to increasing your income more meaningful because once the extra income is attained, it will be put to profitable use. Increase in income allows you to save more and ultimately expand your ability to invest in assets that generate passive income.
Having a reasonable savings buffer gives you options of either investing, taking care of an emergency or undertaking planned spending.
More to that, you can use the New Year to plan all your major expenditures in order of priority. Such discussion will make trade-offs easier to sell other than dictating what should be traded in place of the other.
Once you have agreed, clearly outline how all this will be achieved and agree on when to hold reviews of your financial plan. This is more realistic than making a wish list because that’s what everybody does.
Remember to incorporate a provision for rewarding yourself and celebrating major milestones. You might as well start planning next year’s holidays now. Good Luck.
The writer works with Bank of Uganda
A little more advice . . .
Resolutions don't work - behavioral experts know that. When you wake up on January 1 and emphatically say something vague like "This year, I am going to get my finances under control - I really mean it!" there's a good chance your budget will end up where all those good intentions usually lead.
That's why it's better to make to-do lists instead. Tick them off, one by one, and you'll dramatically improve your finances. Here are tips on how to save and prosper in 2014:
- Embrace a record-keeping system. Just being able to watch your net worth grow, and your debt going down will make you a better financial manager.
- Learn one new thing every week. What's a price-earnings ratio? The more you learn about financial topics, the better you'll get about managing your money. If you are interested in investing, consider forming a study group with some friends. You can choose one topic a week and research it in 15 minutes to a half an hour. In a year you'll be much smarter; in a decade you can be an investing master.