How often do you review your personal finances? If you’re like most people, your answer is Not Often Enough. Right?
It’s hardly surprising. Reviewing our finances isn’t as fun as watching a movie or taking a trip to the beach. But there probably is time we could spare fo this revealing activity.
How often should we do it? At least once a year, but perhaps as often as once a month. There’s no hard and fast rule, but one guiding principle is that if your finances are having an effect on your sleep, then you’re not reviewing them often enough.
White Mountain Partners advises: Review All Outgoings – the everyday expenses
A packet of chips or some gum won’t break the bank, but these everyday expenses, even though small, go by without us really acknowledging they’re still expenses. Over a month, and over a year, they mount up.
So take your outgoings on the essential living expenses over the last quarter – these are food, household bills (electricity, water and gas), clothing, etc – and total them up into these categories. If you don’t have the exact numbers, make an intelligent guess at them.
Now take a hard look at these costs and ask yourself…
- Do you still need them? (If not, then they’re NOT essential living expenses)
- Can the items be substituted for better value alternatives? Such as own-brand goods, or buying in bulk
- Is there a more cost-effective way of acquiring them? Such as buying used, or sharing ownership
Review ALL Insurances, Subscriptions and Contracts
We should all review what we are spending on services every year, or more often, to verify that are still receiving the value we’re paying for.
Take your bank and credit card statements and highlight each contracted service payment. These kind of services:
- insurance
- phone
- ISP (internet access)
- cable, satellite, streaming services
- magazine subscriptions
- online service subscriptions (Playstation Plus, Audible, Amazon Unlimited, etc)
- anti-virus and other software services,
- etc
And then add it all up.
The total will be more than you expect – guaranteed.
You see, when paid for month-by-month we don’t notice the full financial impact of a consuming a product. They seem to pass us buy, as a buying decision. And they mount up!
White Mountain Partners suggests Renegotiating Deals
Many service-providers rely on customer apathy to learn their fortunes – this is where consumers ‘can’t be bothered’ to shop around or chase down better deals at contract renewal time, whilst the existing supplier puts up their price. How many times have you been offered a really great introductory discount on a service contract, only to find after a few years the price is higher than market rate? This is especially rife in insurance, especially auto. They hook you in, then bleed you dry later (but you’re too busy doing other things to notice.) Take a look at your past few years costs – have they risen above inflation?
Best advice: renegotiate every year. Change suppliers if you must. This is very effective in breakdown insurance, (where loyalty doesn’t seem to pay.) You might find switching suppliers every year actually saves you money, because these companies want ‘new customers’, and that’s what you are!
Review Debts and Credit
Here’s they big one you’ve probably been expecting.
Debt comes in many forms, but they all have one thing in common – they’re a hit on our personal bottom line because we always pay more back than we borrow.
Can you switch expensive, unsecured loans into cheaper, secure loans?
There is a big difference between secured and unsecured loans. Unsecured loans are more expensive to us because the risk to the lender is greater – the loan is not secured against an asset that, if we default, can’t be liquidated through a legal process to pay the loan off.
Secured loans are conversely cheaper because the risk to the lender is lower. Therefore, preferable if you can be very confident you can maintain the payments.
If you have unsecured loans, e.g. payday loans, then now is the time to switch them to secured loans. These might be mortgages or auto title loans – both are secured against an asset you own.
Review Savings and Investments
Particularly at the same time as debt. For one thing, pay debts off first, before amassing savings. The cost of a debt is almost always greater than using that same cash to save or invest.
Next, is look at how much you’re saving as an emergency fund. This is the sum of money we put by so that we can cope with unexpected disasters, such as a caved=in roof or flooding. Even with insurances, we still need cash to get us through a disaster.
Depending on who you speak to, you might have been told that you need between three and eight months savings as a minimum. This might be necessary if you’re finances are normally strained, but it could well be over-egging it. If you manage your finances well, any more than three months savings could be unnecessary. Nevertheless, an emergency fund is much advised, and not having one is often regretted because the solution then is to take on an un-desired loan (don’t be in this group of people!)
Review Retirement Savings and Pensions
Like it or not, there is a looming pension crisis. There is not enough money put by to pay for the expected standard of living for millions of workers, heading for retirement. The problem isn’t just shortfalls in the pension funds, it’s also a shortfall in the personal provisions set by, by individuals. Put simply, have you saved enough for your retirement?
The answer is certainly no, right?
What you should do, at least once per year, is to seek additional savings to put into your pension schemes (not before you pay off debts or save for your emergency fund…) And the earlier you do this, the better. The more money you save now, and the earlier you do it before retirement, the far greater impact it will have on your pension fund. This is compound interest at full effect! Take a look at this infographic to see how this works.
