With a new year upon us, many families are prepared to welcome the new year and “spring-cleaning” the home is a priority. Cleaning tasks include wiping away dust and dirt, throwing away no longer needed stuff, reorganizing specific areas and so forth. This applies too to your financial house. Time for a regular “Kondo-ing” (review) of your finances!
Your past year’s personal finances may have seen it’s good, bad, and ugly moments. So, like your house, it could use a thorough clean-up or overhaul. Take this opportunity to review your financial situation and plan the necessary corrective actions.
Here are seven areas you could look at for any changes required to keep your financial house tidy and neat for the next year.
- Consolidate your banking accounts
- Streamline with online statements and bill payments;
- Direct Debits – get rid of it for things you do not need anymore.
- Watch out for auto-renewal policy
- Beware of free trials – upon expiry, charged a full-blown cost
- Dispose of past bank statements.
Consolidate/Streamlined banking accounts with online statements and bill settlements
Do you need three savings accounts with different banks? No, you don’t. Maintain one and close the other two.
Every bank account created must have a purpose. If that purpose is no longer relevant, close it. It is efficient to streamline all banking accounts with a specific bank. You will find it much easier to manage all under one roof.
To keep up with technology, transfer all banking transactions online. It’s clean and organised. You can pay your bills electronically, view your transactions, fund transfer between accounts and mobile banking.
Once merged, you have more money with that specific bank. Use that to your advantage. Negotiate with the bank to get better arrangements for online payment services, fees or interest rates.
Direct debits and unknown charges
You may have forgotten some past standing instruction for direct debits. For examples, the gym membership and a magazine subscription. You have not used the gym for sometimes. The magazine not reaching you for a few months now.
Many of us do not study our bank and credit card statement. Please do that from now on. Ensure you’re not charged fees you don’t know about.
Please report and investigate any discrepancies or billings you do not understand. Credit card thieves usually will make a small immaterial purchase first to test out. Once confirmed they can use it, they will start the shopping binge.
Policy of auto-renewal
Auto-renewal policy of certain services is common. The service is auto-renew upon expiry. To cancel the auto-renewal, you have to notify the vendor in writing 30 days (an example) before the expiry. Unless you disagree, prepare to track the expiry date as a reminder.
Be clear with the vendor before you sign up that you do not wish the service to be auto-renew. Instead, the vendor must notify you in advance before expiry together with the quote on price. This gives you some time to shop around for a better alternative (if any).
Free trials (Is it really free?)
One popular way adopted by businesses to entice potential customer is the offer for a free trial. But with a condition, you provide your credit card details. After the trial period is over, the vendor will bill you for the full cost.
Track the expiry date of the free trial to remind you at least one week in advance. This gives you time to decide whether to continue or cancel the auto debit.
Dispose of past bank statements.
To cut the paperwork, digitized your banking transactions. You no longer need the bank to send you the physical monthly statements. You can access these online.
Paying your bills electronically will save you the price of a stamp and ensure no late payment charges.
- Check your credit report
- List all your debt
- Shop around for lower interest rates
- Come up with a payment strategy
Check your credit report
Your credit score determined whether you are getting good loan terms or bad ones or even your chances of securing a loan. A simple 50 point difference or change can decide which side you are at.
Get your credit report (CCRIS Report) from the credit bureau, BNM through the following channels:
- eCCRIS, a secured online platform where users may access their CCRIS reports, anywhere at their convenience. For more details about eCCRIS, please visit https://eccris.bnm.gov.my/; and
- CCRIS kiosks from the following BNMLINK Kuala Lumpur and BNM Offices, and AKPK branch
Please write-in to dispute any errors noted. You should have a reply in about a month. For further details, please visit BNM’s website here.
List all your debt
Next, check in on your debt status:
- How much is the balance? Who is the lender? What are the interest rates? List it out.
- What is your minimum payment on each owes balances?
- Review how much you can afford to pay toward debt each month?
Shop around for lower interest rates
Shop around for better deals. Compare your existing loan rate against what in the market now. If it’s practical, consider refinancing your loan or requesting your credit card issuer for a lower interest rate.
Payment strategy to clear debt
Once you know your debt, create a settlement action plan with a priority on settling high-interest debt first. This will save you more money over the long run rather than focusing on the smallest balance.
Finally, your settlement action plan should try to pay off all other debt.
3. Change your Spending Habits
- Review the past 6 months credit card statements
- List out your new “spending rules”
Have you ever examine your credit card statement and asking yourself “Did I spend that?” Or, have you found yourself always paying the minimum due? If the answer is yes to both questions, you may be spending way too much.
A credit card is well known for its high-interest charges. With the power of compound interest, the balance owing could balloon to an astronomical amount if you are not careful in your spending. You must take control over your credit card spending before it goes beyond repair.
Start by scrutinizing all your credit card purchases for the past few months. Segregate each expense to either “necessary” or “wants”. Once completed, you will be surprised by the long list of “wants” compared to the much shorter list of “necessary”.
To change this unhealthy spending habit, set a list of spending rules. Ask yourself the following questions each time you contemplate purchasing an item:-
- Do I really need this item?
- Would my life change for the worse if I don’t have it?
- Is there a cheaper or better alternative?
- Can I wait three more days to decide whether I should buy it?
Often times, you will realize you don’t need it.
- Make/Update a list of all your property i.e. your “Personal Property Listing”
- Make a will or review/ update an existing one;
- Evaluate whether you need a financial power of attorney and a living will;
Make/Update a list of all your property i.e. your “Personal Property Listing”
Make a list or update all your personal property i.e. valuables, assets, items that you own. It can be a piece of land, a house, a car or watches.
If a natural disaster happens, this list would be quite helpful when you’re sorting out the details with an insurance company.
It’s also useful when planning your will. It makes you take the effort to decide to whom each of your valuables go to.
Make a will or review/ update an existing one;
Most people tend to procrastinate on this task. If you have yet to do a will, now is the time to get it done.
If you’ve updated your will, then discard the previous one which no longer valid. To keep the old one may create confusion, later.
Having a will ensure all your assets (personal property listing) be given to the person/s you want him/her to have upon your passing. Don’t let the probate court decide it for you. They will take years to decide and execute.
The financial power of attorney and a living will;
Also, consider drawing up a financial power of attorney. This document is to allow a person appointed by you to take charge of your financial affairs if you become immobilized and are unable to make those decisions yourself.
A living will, specifies your wishes if you’re unable to communicate them because of illness. If you have an illness, please talk with your doctor about what to include in your living will before it is made. Your doctor may have some pointers on what to include, or explain to you the consequences of your own instructions.
Review these documents on an annual basis. When you have had a major life-changing event (eg. got married/divorced or had a baby), your will may need to change too. Expect several revisions as you go through different stages in life.
5. Your Investments Portfolio
- Check your risk appetite. Has it changed?
- Check your assets allocations. Need adjustment?
- Do you need to re-balance your portfolio?
- Too many brokers? Consolidate it to a single broker
Check your risk appetite. Has it changed?
Are the assumptions you’ve used to guide your investments decisions to date still valid? If the market turns unfavorable, can you wait it out and keep going or instead you panic and sell your investment?
Don’t wait for that day to happen. Reassess your risk tolerance level. How? A risk profiling questionnaire and an asset allocation questionnaire can help. It’ll gauge your appetite for risk, factor in your investing time frame, and recommend an optimal asset allocation for you.
Check your assets allocations. Need adjustment?
Fine-tune your investment portfolio mix once a year. Are the strategies still valid for the coming year?
Here are some reasons why you need to change your asset allocation:
Change in personal profile
- These are major changes during each stage of your life. For example, you got married/divorced, you have a baby or when approaching retirement.
- If you are approaching retirement, you need to rearrange your portfolio to produce regular income.
Levels of risk tolerance
- Your risk-taking tolerance changes from time to time. Examples of events which affect your risk appetite:
- getting a promotion,
- salary increment in,
- change of location or
- job loss
Sudden windfall gains
- A big gain may require changes in your assets allocation. If it can take care of your retirement, then your asset allocation strategy should now concentrate on wealth preservation.
Do you need to rebalance your portfolio?
To maintain your established asset allocation, from time-to-time, you may need to buy and sell certain stocks, funds, or other securities.
For example, you have established an asset allocation mix of 60:40 for stocks and bonds. In the next few months, the value of the stocks has increased to a 70:30 stocks: bonds assets mix. You need to sell some stocks to return to your desired level i.e. 60:40.
Rebalancing also compels profit taking. Realizing the gains from high-performing investments and reinvesting them in potential growth areas.
It’s important to maintain your asset allocation because it keeps your tolerance for risk at the most comfortable level.
Consolidate your Accounts
If you have different brokers handling your investments, it’s time to streamlined into one. It will make your life simpler, more convenient and you could strategize more effectively.
Having a single broker to hold your investments can provide you with a complete helicopter view of your investments portfolio. You can track for tax opportunities and negotiate to reduce fees and commissions’
Which broker to choose? The one that can offer your preferred investments to own for the lowest commissions.
- Get new quotes for car, home and life insurance policies;
- Update beneficiaries.
- Hire a fee-only insurance advisor
Firstly, know exactly what are your insurances requirements. List out your car, house, life and health policies, and any other types of insurance you may be carrying, to review and ensure it all still meets your needs. If unsure, seek the services of a fee-only insurance advisor who is not affiliated to any insurance companies. The advisor will assess your insurances needs* and recommend you the market’s best insurances deals.
Hiring an independent advisor will incur additional cost. But the return is much more when coming to payout. The advisor may find a deal that adds in an extra RM100k more as compare to if we go in by yourself.
*Insurance revision may be required if you have a major life change. For example, a new baby might necessitate a higher coverage, divorce or death might require a beneficiary change.
Once you have renewed or change any policies, shred your old documents. Otherwise, you may get confused.
7. Have you neglected to follow your budget? Bring it back, update it and stay on track!
A budget is a powerful tool meant to help you manage your finances. It reminds you to keep your expenses within the amount you have allocated. Use the budget created and track your expenses. When it starts to deviate, bring it back to stay on track. Be consistent and discipline yourself to stay within the budget. Soon, things will materialize and you could see yourself moving closer to your financial goals.
If a yearly budget is too long a period for you, then change to a monthly or even weekly one.
Create a realistic budget, follow through and ensure no overspending.
What other financial aspects do you spring clean? Share with us in the comments below.