Why financial planning is key to ensuring a truly prosperous year
With a weekend of frenetic partying in the past, most of us will only be getting around to our annual stock-taking right now. And sorting out one's finances must be among the most popular New Year resolutions this year, particularly as we feel the hangover of the financial crisis.
But Spencer Lodge, Middle East Regional Director of independent financial advisory firm, Professional Investment Consultants (PIC), says the organisation of financial affairs can be one of the easiest areas of a person's life to improve with the help of a qualified professional. PIC is a member of the deVere Group of companies, the world's largest international IFA, with in excess of $7 billion (Dh25.69bn) of funds under administration and management.
"The most important thing is to keep your perspective and be the master of your finances, not the other way around. By getting your plan in place now, 2010 might be the turning point as you strive to achieve your financial dreams," says Lodge, who has over 15 years' experience in the wealth management business worldwide.
"I believe one of the most important pieces of advice is to 'stay invested', even during difficult times. The market is always fluctuating, but we know it will eventually bounce back and you have to stay invested to benefit," he continues.
"Holding cash should only ever be in the short term as you will quickly lose ground to inflation and history has shown that discipline and hanging in there is usually rewarded in the end."
We asked him to share five financial New Year's resolutions to ensure a more prosperous 2010 and beyond.
1. Cut out credit cards: We are all aware credit cards can carry astronomical rates of interest, so make it your priority to reduce any balances.
Once you have eliminated your card debt, use only one card and pay the balance off monthly. If you have a number of credit cards it might make sense to consolidate them into one loan, so asking an advisor could save you a lot in the form of interest. And once your debt is totally paid off, ask yourself if you really need a credit card.
2. Build up your retirement savings: Contribute to your retirement fund as early in your life as possible and don't let this slip just because you are away from your home country and enjoying the comfortable expat life.
Before you know it, the next decade will be closing in and you do not want to be falling behind in your quest of a comfortable retirement. In many cases, if you aren't maximising your retirement contributions, you may be missing out on tax savings and possibly potential employer contributions too.
3. Cash flow planning: Take a few minutes to figure out how much will be coming in and how much should be leaving your account each month in 2010.
If more is going out than coming in, re-evaluate 'needs' versus 'wants' and try to cut back in areas you don't feel are necessary for your happiness. A clever way to do this is by tracking your spending over 30 days and looking back at the ways you could have cut back. As a rule of thumb, you should try to set aside three to six months' living expenses for emergencies.
4. Give your portfolio a check-up: The New Year can be the perfect time to get your asset allocation in line with your goals, timeframes and risk preference.
The risk of your assets may have changed over the past year, so realigning your portfolio might save you any future shocks and disappointments. If you are too busy through the year to keep a tight watch on your individual stocks, bonds and mutual funds, take some time now to see how they're performing and if they still suit your situation.
This will likely lead to you updating your personal financial plan and if you have previously dealt with a professional advisor, then make an appointment to sit down together again. The financial services industry is dynamic, with regulations changing, markets evolving and numerous new investment products and vehicles continually being invented. If you've never gone through the planning process, now is a good time to do so.
5. The cost of a good education: If you have plans for a family or already have young children, contributing to a savings fund now can make life much easier in the future. The well prepared among you will even look towards future college education fees.
Expatriate education fees for quality schools and colleges can be crippling over the course of a young person's school life and should not be underestimated since it can add up to several hundred thousand dollars in total.
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