Endowus’ fresh Wealth Insights survey showed that cost of living has shot to the top of investors’ list of worries in 2022. GST and inflation concerns weigh heavily on their minds. Those in their 40s through to the 60s are particularly fretting over retirement adequacy.
Here is a personal finance checklist to keep yourself (and your bank balance) in check.
Why do you need a personal finance checklist?
Stay on track with your financial goals
You may have financial goals such as paying off your loans, saving 30% of your income each month, or budgeting for a new car. These goals would require planning and constant monitoring to ensure that you are on track to fulfilling them. Your financial checklist can act as a guide for you to review your financial achievements and setbacks, to identify areas of your goals that may need readjustment.
Plan for the upcoming year
Fear of the unknown holds many people back from taking the first step towards financial wellness. In order not to commit the same money mistakes of 2021 in 2022, you should be planning financially for the upcoming year. Having a checklist of your financial goals can give you a clearer picture of your upcoming expenses, ensure that your investments and overall income outpace inflation, and keep you on track towards retirement.
In short, having a personal finance checklist can help you get an overview of your finances, plan your spendings and savings, and generally offer you a greater sense of financial security.
Your annual personal finance checklist
Here are 5 aspects of personal finance that you can review. This list is in no way exhaustive, so feel free to build on this list when creating your own personal finance checklist.
Your personal expenses
The past two years have been a whirlwind of changes when it comes to expenses — with Covid-19, weekday lunches with colleagues might have been replaced with home-cooked meals, new outfits have been replaced by new electronics, and transport costs have been replaced by food delivery expenses. With all these changes, it is high time you reevaluate where exactly your money is going.
If you had a personal budget or tracked your expenses in 2021, it would be beneficial to review your expenses, and determine if you stuck to your budget, or if you have overspent or underspent in certain categories. If you do not already have one, coming up with a personal budget for 2022 can help you to control your spending, track your expenses, and save more money. Using the previous year’s spending data can help you budget better the coming year.
Naturally, you would want to cut down on unnecessary expenses wherever possible. These extra funds can be invested, added to your emergency fund, or used as extra lining for your retirement nest egg. Common expenses such as unused subscription services can hinder your saving efforts. Therefore, it would be prudent to include reviewing your expenses periodically in your financial checklist to cut down on these unnecessary expenses.
Do you have enough money saved up to finance any upcoming big ticket expenses? Any major life milestones, such as a wedding, purchasing a new house, or sending your child off to university, would require a large sum of money. By reviewing the amount of savings you have and the required amount for these expenses, you can forecast your ability to pay for these expenses.
Other than regular savings, it is also critical to have an emergency fund. Even the most prudent person cannot protect against an unexpected crisis such as sudden injury/illness or an unexpected loss of income. Your emergency fund should cover at least 3-6 months of basic living expenses. It should also be kept highly liquid because you would want to have immediate access to it if you suddenly need the money. Having an emergency fund can provide you with peace of mind, and prevent you from going into debt arising from unexpected expenses.
Your insurance plans
Insurance acts as a financial safety net that helps you take care of yourself and your loved ones when you need it most. With the right insurance, you can be assured that your loved ones would not end up saddled with debt should anything unfortunate happen to you.
Some may write insurance off as an unnecessary expense as they believe adverse events would not happen to them as all-invincible beings, or that they have saved up sufficiently to pay for any potential bills. However, is it really worth wiping out your entire life-savings just to pay for one medical bill? Probably not.
As you go through different milestones in life, the protection you require will change as well. Reviewing your insurance coverage every year would ensure that you are constantly adequately insured — not over-insured and paying premiums through your nose, nor under-insured and unable to claim your full loss.
Insurance is a long-term commitment. Therefore, always be discerning when deciding on a plan, as switching or terminating a plan prematurely can incur high costs. Speaking to a trusted financial advisor can be useful if you are not insurance-savvy.
Your investment plans
It is important for investors to review their investment portfolios periodically, especially when the economy undergoes significant changes. Rebalancing your portfolio ensures that you are not carrying too much risk or wasting your investment monies on assets that are underperforming. It also ensures that your portfolio reflects your investment strategy, as shifts in the market might throw your portfolio out of balance.
The costs of managing your portfolio should also be assessed. Costs can come in the form of fees, time, or effort. If the cost of investing is too high (e.g., you are paying too much in fees, or managing your investments is taking up too much of your time), you might want to consider other means of managing your portfolio to cut costs. For instance, switching to a robo-advisor if you are currently picking stocks.
Your financial needs and risk tolerance levels might change over time as well. For instance, you may take on more risk on investing for your retirement fund decades away, while wanting more conservative investment options to fund your child’s education in 3 years. Reviewing your investment plans at least once a year can ensure that your investments are still matching the time frames or specific goals you have planned for.
Your retirement progress
Retirement is the financial be-all and end-all for many. All that saving and investing and planning is ultimately for you to enjoy a comfortable retirement. Naturally, your personal finance checklist should track your retirement progress and outline the main considerations you should have regarding your retirement. No matter how old you are, it is never too early to start planning for retirement.
Aspects of your retirement checklist you can review every year includes:
- The amount you want to contribute to your retirement fund each month
- The mode of your contribution — cash, CPF, or SRS
- How will you grow your retirement wealth?
- Evaluate when you would want to retire, your monthly retirement expenses, and monthly income from investments / CPF / SRS payouts
Start retirement planning as early as possible, to reap the benefits of compound interest and to save yourself the scramble of building your nest egg 5 years before retiring.
Go over your personal finance checklist as often as you would like, but make sure to review it at least once a year. Give yourself a financial checkup to keep your expenses in check, and review in the next year to see how you have fared in 2022.
Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Past performance is not an indicator nor a guarantee of future performance. Rates of exchange may cause the value of investments to go up or down. Individual stock performance does not represent the return of a fund.
Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endow.us Pte. Ltd (“Endowus”) and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus Pte. Ltd., its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider (i) whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You may also wish to seek financial advice through a financial advisor or the Endowus platform and independent legal, accounting, regulatory or tax advice, as appropriate.