How to review your finances (2018)
It’s the end of the year, and probably the best time to review your finances.
We know, we know, it’s always ugly to realise how much you spend – but it’s better to grit your teeth and fix things, than go through another year of lost cash.
Here’s how to do it as painlessly as possible:
Step 1: Compare your credit card and bank account statements with the previous year
Group your expenses into general categories, such as:
- Entertainment (note: eating in pricey restaurants should count as entertainment)
- Services (e.g. gym or Netflix subscription)
- Unclaimable work expenses
This isn’t a definitive list, you may have more categories, or fewer, depending on your situation.
Also, note that some items can fall under more than one expense category. For example, if you need to use a cab to get to work and the company doesn’t cover it, it could count as both transport and an unclaimable work expenses.
Categorising your spending can get tedious, but you can streamline the process with apps. Seedly, for example, links to your bank account's statement and categorises them into some of the abovementioned categories.
Compare this year’s expenses in each category, to the previous year’s (e.g. compare your 2018 year-end results to 2017). What you’re looking for are percentage increases that exceed 3%.
Note that the rising cost of goods and services (inflation) in Singapore is roughly about 3% per annum. If your costs rise by this amount, it’s fair to attribute it to the simple rising cost of living.
That said, you'll still need to take stock of how you've spent. Let's say in 2017, you spent a total of $2,025 on transport over the entire year. In 2018, the total amount spent is $2,075. This is a percentage increase of around 2.4%, which is nothing to worry about.
However, if the total amount spent for transport in 2018 is $2,200, this would be an 8.6% increase.
You’d need to review why the cost is increasing so much, and rebalance your budgeting plans to accommodate it if there’s no way to keep it under control. Here’s an online calculator if you don’t know how to work out the percentage increases.
For example, if the big jump is due to sending your children to a distant tuition centre, it may be time to consider something closer.
There will be cost increases that you can’t help, such as rising insurance premiums. But it’s important to at least be aware of which costs are rising, so you can budget for them.
Also, in reviewing your finances this way, you may be able to spot costs that you can reduce.
Step 2: Check your automated payments
Take note of your GIRO payments, as well as automatic subscription payments (e.g. Microsoft Office or cable channels). There are two things you’re looking out for here:
First, you’ll want to double-check that important GIRO payments are going through. Make sure your insurance doesn’t lapse, or that your MediSave minimum doesn’t go unpaid (if you’re self-employed). There can be serious consequences if these payments aren’t right, such as losing your insurance protection, or contributing less to your savings than you expected.
Second, make sure that all the automated payments are for things you actually use. If you only watch cable channels once a week, it’s time to stop paying for it.
Step 3: Check and rebalance your financial portfolio
Check the return on financial products such as Exchange Traded Funds (ETFs), endowments, Investment Linked Policies (ILPs), and others.
Note that financial products may have an absolute return, i.e. they are supposed to give you the same return regardless of market conditions). They may be pegged to a benchmark index such as the Straits Times Index, so the return should be more or less similar to the performance of said index.
You should speak to your financial advisor, or the person who sold you the product, for an explanation of the returns. Ask for the past 5 years’ performance of the product as well, so you can see the overall trend.
We can’t give you investment advice, but we can tell you that it’s prudent to reconsider investments which keep missing their targets. At the very least, seek the opinion of a second, qualified, financial advisor.
This is also the right time to rebalance your portfolio. For example, if equities now make up 80%t of your portfolio when they’re supposed to make up only 70%, it may be time to sell some off. Again, ensure your financial advisor goes through it in detail.
Besides checking with your financial advisor, you can also turn to automated investment systems, or more commonly known as robo-advisors. No huge investment required, because most robo-advisors come with either no minimum amount or a very nominal sum to let the system invest automatically for you.
Step 4: Optimise your credit cards
Check your credit card reward points, and cash them in if they have an expiry date.
Next, check how much you use on each credit card (this should be simple via the credit card statements). If any particular cards are unused, cancel them rather than keeping them on – you don’t want to end up paying annual fees for credit cards you don’t use (also, it looks better on your credit score not to have too many credit accounts open).
This is also a good opportunity to spot any unpaid debt on your credit card. Always pay off your cards in full, to avoid paying the interest.
Finally, visit GoBear to check out the latest best deals for dining, entertainment, petrol, or whatever you spend on most often – there may be a credit card with a better deal than yours on the market.
Step 5: Consolidate your debts
If you have any personal loans or credit card debts outstanding, consider consolidating them under a cheaper loan. This will minimise your interest repayments.
For example, say you owe $3,000 on credit card A, and $2,000 on credit card B. Both are at an interest rate of 26% per annum. In addition, you also have an outstanding personal loan of $7,000 compounding at 6% per annum.
You could consider taking a more manageable personal loan at 3.88% per annum for $12,000. You’d then use this money to pay off both credit cards, as well as your outstanding personal loan.
In one move, you would have reduced your interest from 26% and 6% to just 3.88% It’s also easier to handle repayments, when it’s all under one loan.
Step 6: Check on your accumulated savings
You should not accumulate more than 6 months of your expenses in savings – anything else should be invested, to prevent your money from stagnating (the interest rates the bank gives you is not enough to keep pace with inflation).
Speak to a financial advisor on which products to place your excess monies in.
If you don’t have 6 months of your savings yet, or you’ve depleted your savings for some reason, ensure your contributions are ongoing. If you have some spare cash, such as from a year-end bonus, you should seriously consider using it to top up your savings.
Finally, do a quick review of bonus tiered savings accounts between banks – find the bank that will give you the highest interest rate for parking your savings with them.
Alternatively, you may want to consider comparing bank interest rates with the current Singapore Savings Bond (SSB) rates. Over a long term, such as 5 years or more, SSBs almost always give you a higher interest rate than most banks.
You can also cash out at the end of any month, which leaves your savings accessible in an emergency.