We all know the importance of getting our finances in order, but knowing where to start can seem overwhelming. With so much to consider, on top of our already busy lives, it’s tempting to put it off for another day.
We often wait for significant dates to push us to make a change or improvement - particularly new years or birthdays, but this undermines the most important factor in getting your finances in order, and that is just to begin.
It really doesn’t need to be overwhelming. By considering a few critical factors, you can make sure you and your family are prepared for any eventuality. The specifics of each person’s finances may be different, but some general rules apply.
Gather up-to-date statements on all your accounts, including bank statements, credit card statements, store credit statements, investment accounts and others.
This is not only useful for your own reference but may prove essential should you become incapacitated or pass away and your family need to resolve your outstanding affairs. Important information to keep in your financial file include an up-to-date will, insurance documents, a list of ongoing payments, and a list of open accounts. It is important to realise that this will be a living file, and will need to be updated over time or as circumstances change. Once you have all your documents in place and you have a clear picture of your current financial position, you can then create a plan which moves you towards a better position.
Consider each of the expenses on your budget and decide where they stand in your priorities. By classifying each expense as essential, comfortable, or luxury you can begin to see where you might save on expenses and reassign money towards paying down debt or increasing savings.
A debt plan takes account of all your outstanding debts and sets out a repayment schedule to pay these down as quickly as possible. These repayments should be worked into your budget. Some long term debts like home loans or car repayments will likely require a long term payment plan, but repayment of short term debts like credit cards should be prioritised and further such debt avoided.
Once you have a plan to pay down your debt, you can plan for savings. This may include long-term retirement savings, or medium-term savings for expenses like holidays or your children’s education. It is also helpful to earmark some emergency savings for unexpected expenses such as medical bills or car maintenance.
Once you have a plan for debt and savings which ties into your budget, you can take control of the predictable parts of your finances. But what about the unexpected?
This is where insurance becomes a critical part of getting your finances in order. All your plans can easily be derailed by an unexpected event. Ensuring you have adequate insurance cover can protect you and your family against financial ruin.
Your physical assets can be protected against loss or damage, allowing you to minimise the impact on your financial position in the event of such a loss.
But what happens to your finances if you die, become critically ill or become disabled? With Life Insurance as a key part of your finances, you can ensure that outstanding debts are covered and your family receive an ongoing income in the event of death, as well as Salary Protection in the event of disability. So even if you are no longer around your finances can still be in order.
The key to getting your finances in order is sticking to your plans. Exercise discipline in sticking to your budget, pay down your debts, increase your savings, and make sure you are covered for the unexpected.
This may appear really difficult, but by just starting and following each step as best you can, you can get yourself on the path to having your finances in order, and keeping them that way.
Posted in Insurance 101 on 16 May, 2023