Financial Fitness for a New Decade

(article published in Canarian Weekly 8th January 2010)

It’s that time of year when we all vow to start a fresh. A new year filled with new resolutions. Most of us promise to start exercising and eating better. But what about getting our personal finances in shape as well?

People often make resolutions at this time of year, but with us going into a new decade, now is the perfect time to make some serious decisions about our financial future. With the economy struggling and unemployment at the rate we have not seen in many years, it is more important than ever to get centered and focus on what is really important. If you have not been directly affected, I bet you can easily point to a friend of a family member that has felt the effects of the global economical crisis.

Design your financial fitness plan
If you feel your personal finances need to get into better shape, you might try to do so with the help of a budget. This important tool can be used to keep track of your money and understand your spending habits. It could be the first step in a financial fitness plan. A budget allows you to see the areas where you can cut back on expenses and save money. A budget can help you reach long-term goals, like buying a house, opening that shop, or preparing for your retirement. It can also help you achieve short-term goals, for example, buying clothes, travel, or going to a restaurant. By planning ahead and setting spending limits, it will be easier for you to save money and reach your financial goals.
Track your spending habits over a month or two. Keep your receipts or record your purchases. If it helps, make a list of what you spend at the end of each day or each week. In addition, keep track of all the money you have coming in (your income). Once you have a good idea of your income and expenses for previous months, use these figures to make yourself a budgeting table to track how much money is coming in and how much is coming out of your budget. Review the amount you expected to put towards your expenses against what you actually spent. This way you can determine if your expenses are under control or if you should cut back in order to be able to put money aside every month. Set yourself spending limits for regular expenses and put money aside each month to cover unexpected expenses. This is the most important part of your budget. For example, rent is a regular monthly expense. Unexpected expenses, such as gifts, medication, or car repairs, should also be included because they could quickly throw you off your saving plans.
Remember, it is important to be realistic when you make a budget, so that you will be able to stick to it. When you are creating your budget, it is important to make reasonable and realistic spending decisions, because if you feel like you are depriving yourself , that may make it harder to stick to your plan. Do try, though, to limit your spending as much as possible to what is in your budget. It is essential that you keep track of your expenses so you can make adjustments where you can in order to meet your monthly savings goal.
At the end of the month, look at your budgeting table to see if the amount you spent in each category was what you planned. You will be able to see the difference between what you actually spent and what you had budgeted. Then take your total income and deduct your total expenses to find out how much money you have been able to save, or how much extra money you spent. You may find you need to adjust the amounts, or you may need to restrict your spending more in certain categories. If you can stick to your budget quite closely, you should find that your income covers your expenses and that you are saving enough for your financial goals.

Saving money
One of the easiest ways to save money is to “pay yourself first.” You can set automatic withdrawals from your bank account into a special savings account each month or an insurance saving plan. This way, your money goes into your savings before you even realize it, or spend it! There is also no way you will forget to put money aside. Some insurance companies offer very interesting saving plans, ask your insurance to make you a proposal, and probably you will discover that saving 60€ a month is not so hard to accomplish and in a couple of years you will be thankful for that extra saving. Patience is necessary – sticking to a budget and saving money can take time and certainly does not happen overnight. But the sooner you start, the faster your savings will grow.

Get rid of those debts
Once Christmas and New Year are over, many people will not only find themselves nursing a hangover brought on by the festivities, but they will also be struggling to cope with the financial hangover brought on by the cost of Christmas and the accompanying celebrations.
Don't ignore debt built up over Christmas and New Year, it won't go away by simply forgetting about it; Review existing debts. Could you be better off by transferring your credit card balances over to another issuer? - Many offer lower interest rates on balance transfers, particularly at New Year. Many card providers still charge an annual fee for their card. Would you be better off taking out a personal loan to consolidate your debts? If you have a habit of over-spending on your credit cards, why not put them away in a safe place and save them for a rainy day - only use them if you really need to. Talk to your bank and insurance broker - they will talk you through your finances and may come up with solutions you hadn't previously thought of.

Plan ahead and look for better deals with time
Whether you're worried about paying off debt, saving for your second honey moon or planning for retirement, the New Year is a new chance to get your financial house in order. Financial fitness involves thinking about your saving and spending habits, analyzing health and life insurance coverage and organizing financial records. A new year will also bring with it a new tax season, a time to gather paperwork and review the past year, an ideal time to think about finances. An annual review of your finances is a necessity at this time of year, not just for tax purposes, but because finances are dynamic; needs and goals change, new savings, investment, and insurance products become available, family incomes increase, children are born, others are off to university, jobs change.
This year, as you resolve to make positive changes, work on improving your financial situation. Start by gathering and organizing your paperwork: life insurance policies and beneficiary designations, year–end statements from your retirement and investment plans, disability and long term care insurance policies, last year's tax return, car and house insurance, your spending records, and other financial documents.
Next, plan to meet with your insurance agent, tax advisor, and/or your legal advisor to discuss the past year as well as your plans and goals for the coming year. List any changes in your work and/or personal life that took place in the last 12 months. These may include a job change (including retirement), the closing or opening of a business, a new business partner, a new home, a new baby, marriage or divorce. List any changes in your work and/or personal life that will take place in the next 12 months: considering these events proactively will help you plan ahead and put any necessary changes in motion so that you're ready for these events when they happen.
Review your life insurance plans carefully. Most people think about life insurance only as a way to protect the people who depend on them for financial support in the event they die prematurely. Although this is the primary purpose of life insurance, permanent life insurance can do a great deal more. Ask about the ways in which life insurance may be able to help you meet your long term goals. Find out too about the potential advantages of converting your term policies to whole life coverage.
Review the performance of your retirement plan savings and investments. Many financial experts say you may need from 70 to 80 percent of your pre–retirement income to maintain your standard of living after you stop working. This figure has increased in recent years for a variety of reasons, including inflation, better medical care, and changing expectations during retirement. Today's retirees have redefined retirement as an active time to explore new interests. In addition, while some expenses typically decrease during retirement (such as mortgage, and financial responsibilities for children) others, such as health care, travel, hobbies, continuing education, or a second home, can actually increase.
If you own a business, review all your insurance and retirement programs. Together with your insurance agent, review your business owners policy and group health, disability, retirement savings, and life insurance plans carefully to be certain that your business and your employees are adequately protected and that your policies continue to make economic sense for the business. Finally, be sure to find out about new policies, plans, and products that are available. Insurance companies introduce new products and enhance their existing products each year.

The New Year is synonymous with starting over, new resolutions. It's a time to reflect back at the progress made and set new goals for ourselves for the coming year. It usually starts with getting physically and mentally fit, eating well and now becoming financially fit too...

Susana Dias is the Director of TVT - the Zurich Insurance Agency in Los Cristianos legally inscribed at the DGS (Direccion General de Seguros Española) with the number C0530B38657193 - more than 15 years providing excellent service.

Contact the Author for more information or any doubt you might have