A resolution is much more than a wish list one makes every year or derisively write-off as wishful thinking. A resolution is setting a meaningful purposeful goal on where you want to be.
“If you want to live a happy life, tie it to a goal, not to people or things.”
Below is a list of nine areas to build your financial resolutions for the year ahead.
1. Pay yourself first
You are the captain of your own ship. And you determine your future. You work hard for a living. So make it a point to pay yourself first.
2. Prepare for rainy days
Even in California, it will rain some days. And no matter where you are in the world, you don’t know what tomorrow holds. The cliche of preparing an umbrella before the rain still holds true in preparation for emergencies. Avoid risking an emergency drowning you in worry, debt, and destroying your future. Build up sufficient cash (or other liquid) savings that you can quickly access in case of emergency.
3. Live debt free
Learn to tell the difference between good debt and bad debt. As much as possible live debt-free. If you’re nearing your retirement years, work hard to clear off your debts before retirement. Live a life unburdened and unshackled by debt.
If you’re young, avoid the follies of youth and living as a slave to debt. If you’re currently in debt, work out the best method to clear it off whether using a snowball (smallest amount first) or avalanche (highest interest first) method.
4. Get adequately protected
Different stages in life require different levels of risk management. Get as much coverage as you need to adequately protect yourself.
Know how much you need for medical coverage, income replacement, and other coverage needs. Don’t overpay for insurance. Yet don’t undercover yourself. Keep your insurance separate from your investments.
5. Know your worth
What is your current net worth? How will your net worth grow over time? Are you over or under accumulating wealth with all the opportunities that life has given you?
6. Write your will
It’s simple and affordable. Avoid the pain of a lengthy and expensive drawn-out process of dying without a will. Don’t make your loved ones suffer another loss beyond your passing.
Basically, if you have assets besides EPF, unit trusts, and insurance policies – you need a will. Even though you may be single.
7. Define the ‘why’ in your finances
What are the goals you’re striving for? Is retirement something too far away that you can’t even picture or fathom it? Know your retirement number. And more importantly, know why your financial goals are important for you and your loved ones.
8. Invest in your future
Time and compounding returns are your friend here. Invest for your financial future. Work towards setting aside 40% of your income towards investing into your financial freedom.
If you’re employed, EPF already takes care of above 20% of that. You just need to save the remaining 20%.
Learn the various types of investment asset classes. How do they perform in times of different economic situations? Is your investment asset allocation in place? Are you sufficiently diversified come what may?
9. Simplify with an advisor
Working with an advisor is invaluable if you need help learning about and planning your finances. If you typically plan your own finances, working with an advisor is still invaluable to give counsel and help you discuss and keep you disciplined.