A new year is a good time to review our financial decisions. It’s time to track our spending patterns, investments over the past year and whether these decisions were in line with our overall financial objectives. The intention here is not to criticise or regret what is bygone, but rather to understand our own financial behaviour. It can help us align our behaviour to our life goals or to rethink some of our financial decisions.
Regular review is also an important part of financial planning. Managing money isn’t easy and it requires an honest look at your own financial habits, biases, expectations, and cash flow. But it’s critical if we want to inculcate financial discipline and understand our own behaviour. Ultimately, it is the first step towards improving your financial health.
Steps To Improve Your Financial Health in 2022
Financial health refers to your monetary state. Strong financial health is characterised by a steady flow of income, a growing cash balance, a robust portfolio, and regular expenses that do not show any sudden spikes. Getting to this stage can seem challenging, especially when you are starting out with a limited income and heavy expenses.
This is where financial planning comes in. A good financial plan should help to keep you on track for your overall financial goals.
1) Review your investments
It is critical that you review our portfolio periodically to assess the status of your assets, how these are maturing, and to keep an eye on your cash flow. With age, your investment portfolio will also change in keeping with your risk profile. For instance, you are more open to high-risk high-return investments at a young age when you have few dependents. In contrast, you are likely to be more cautious in your 40s where you may have multiple liabilities and cannot afford to take high risks.
The year-end portfolio review is also the perfect opportunity to list all your investments in one place to see its overall asset allocation. This includes all asset classes, including, gold real estate, mutual funds, EPF, and equity. The next step is to track the returns on your investments through the year and see if these meet your expectations. So, if you expect a 12% return from a mid-cap stock, where does your investment stand at this time?
At the same time, you can compare the weightage of an asset against its returns to ascertain the balance between high return and steady investments. The portfolio review gives you an accurate picture of the weightage of each asset, the overall returns on your portfolio, and to reassess this distribution as per your current risk tolerance.
2) Examine unnecessary expenses
One of the major focuses of a review is to understand our spending patterns. While we may aim to follow pre-set …….