January often brings a financial crunch, as holiday spending leaves pockets empty and unpaid bills start piling up.
According to Tavona Biza, Group Chief Executive Officer (GCEO) at Old Mutual Ghana, crafting a list of New Year’s resolutions has been a common approach to “making things better for the year ahead”. However, resolutions can be challenging due to our tendency to set overly-rigid rules for ourselves. We often adhere to these resolutions briefly before reverting to old habits. Keeping your financial resolutions simple and having as few as possible makes success possible.
Mr. Biza outlines five fundamental financial planning strategies/resolutions that can have a profound impact on your life. Incorporating these principles into your resolutions can make 2024 a significantly smoother year financially.
The first strategy should be to reduce spending and increasE savings. A budget is essential for achieving this goal. Adopting the 50:30:20 budgeting approach can be effective.
This guideline allocates:
50% of your income to Needs: This portion covers essential and fixed expenses.
30% to Wants: This portion focuses on non-essential lifestyle spending.
20% to Savings: This portion helps build a financial cushion for the future and supports your financial goals.
Using this guideline as a framework and adjusting the ratios as needed can help you stay on track.
While reducing spending may seem daunting, it can be achieved by identifying and eliminating small, everyday expenses that often go unnoticed. By tracking your daily spending patterns, you may be surprised to discover that these seemingly insignificant purchases add up to a substantial amount over time. For instance, if you spend GH¢20 on small items every day, it translates to GH¢140 per week, GH¢600 per month and a staggering GH¢7,300 annually. By identifying and eliminating these unnecessary expenses, you can improve your financial well-being.
The second is to spend less and reduce debt. Start by understanding your spending patterns and identifying areas where you can cut back.
Limit the amount of cash you keep; cancel debit cards that are not essential for your daily purchases; avoid borrowing and making deposits that yield no interest. This will help you avoid impulsive spending and stay focused on your spending goals and debt repayment, if any. Don’t fund entertainment with credit.
The third resolution is to distinguish between wants and needs. Recognise that what you desire may not always be essential.
“Purchasing luxury retail items through installment plans can be a costly venture, especially with interest rates hovering around 30 percent. Consider saving for desired items instead. Often, you may find that desire for the item diminishes once you have the funds,” Mr. Biza added.
The fundamental principle of financial management is that if an offer appears too good to be true, it most likely is.
“It’s unfortunate that people seeking financial success often fall prey to unrealistic promises which lead to disappointment. Steer clear of any investment scheme that offers abnormally high interest rates or unrealistic returns on your money. Your fourth resolution should be to stick to reputable financial institutions for your investments,” he said.
Finally, there’s one resolution that could have a life-altering impact on you and your family, Tavona emphasises.
“As we transition through life’s stages, from our first jobs to retirement, having a trusted financial adviser can be invaluable. Their expertise can guide you in structuring savings, investments and long-term financial planning, ensuring you build a lasting legacy for your family.
“As with all financial endeavours, swiftly translating your resolutions into action is the cornerstone of achieving prosperity,” he concludes.
