This week we suggest some New Year’s resolutions that will help make sure your financial affairs run smoothly in 2012 and beyond.
Use credit cards wisely. Credit cards can be incredibly useful and convenient but they can also be incredibly dangerous. So maximize the benefits and avoid the pitfalls.
If you don’t pay off the full balance each month then you will be staggered by how quickly the interest charges accrue and how easy it is to get caught in a trap of escalating debt. So make sure you pay the bill on time every month, unless there really is an exceptional reason.
Some people have a pocket full of credit cards. This can be beneficial because many credit cards offer benefits, ranging from waivers of card fees to discounts at restaurants and stores. But if you collect credit cards you may also end up paying multiple card fees as well. Some of the card fee waivers are for the first year only. Also, the more cards you have, the more likely it is that you may neglect to pay your monthly bill. So try to arrange for the automatic transfer of the full outstanding balance each month to avoid interest charges.
In terms of maximizing the benefits, take advantage of the special offers linked to your credit card, whether it’s loyalty points, free insurance or discounts at your favorite restaurant.
These benefits can be quite significant, and many consumers do not take advantage of them, either because they are not aware of the benefits or because they do not redeem them, often by letting the points expire.
Plan for retirement. Make sure your plans are up-to-date and credible. We’ve dealt with this in previous articles. Now is the time to create a proper retirement plan. At what age do you want to retire and how much income and cash will you need at that time? Take into account inflation and lifestyle changes when you retire. Then work back and calculate how much you need to save each month between now and your retirement age. The regular savings amount is best expressed as a percentage of your salary. If any of you missed our previous article and want another copy, just e-mail us.
Get adequate insurance. Make sure you have adequate insurance for yourself, your family and your possessions. You and your family you should consider at the very least life, health and travel insurances.
For your possessions, make sure you have adequate insurance for your home and your vehicles at least. For your home, make sure as many key risks possible are covered, including earthquake, flood and theft. Be sure to check if your house contents are covered for their replacement value. For your vehicles, make sure you have comprehensive coverage. That means not only coverage for accidents, fire and theft, but also third party claims. Remember if you have an accident you can be sued by third parties for far more than the value of your vehicle.
Check out your personal balance sheet. How much are you currently worth? Are you a dollar millionaire or a rupiah millionaire? This is an interesting exercise which many of us have never done and often surprises us. Sit down and list out all your assets: real estate, valuables, savings, stocks, life insurance policies, pension plans, etc. Then estimate a value for each of them, which can take a bit of effort, since you may need to ask the provider or seek an expert opinion for things such as life policies or expensive jewelry. Once you have calculated the value of your assets, don’t forget to deduct the value of all your liabilities, such as mortgages, car loans or credit card debts.
Now, take a deep breath and look at your net worth. It can be quite a sobering experience, for example, realizing that you have been on this planet 50 years, earned around $500,000 but only have $20,000 to your name. Take time over the New Year holiday to take this test and to assess how well you have managed your finances up to this point in your life. You may then decide you need to add another resolution for 2012.
This is a weekly column written by Sense for Money, an initiative created by financial services professionals who are dedicated to increasing financial awareness and understanding among Indonesians of all backgrounds through various media, including educational games. Comments and questions to this column are welcome, please write to firstname.lastname@example.org