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December: Time for financial check-up
11/12/2012 00:00:00
by Tafirenyika Makunike
 
 
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I JOIN many of my country folks in the collective end of year sigh, accompanied by the question: where did 2012 go?

Many of us were very busy with various activities throughout 2012, but motion should not be confused with progress. My desire is to move from just hard working to smarter working.

There were many endeavours and ventures we embarked upon where the outcome has been dismal. The temptation as 2012 comes to a close and 2013 beckons is to shrug off the failures of the year and rush off to assembly new goals and resolutions. As long as we still sell our time and expertise for money then we are all still candidates for wealth management planning.

As individuals, it always helps to identify what is important to us such as finding and pursuing a calling, spiritual growth, developing relationships, building wealth, entertainment, health and fitness. Once you know these, it is necessary to find balance with your time allocation reflecting this but accompanied with a measurement system.

If we spend a good part of our productive time toiling for a living in 2012 with no tangible increase, can we then conclude that it was a good year? Did we move a step closer to financial freedom and redeeming our time?

The one good path to financial independence over the long term is increasing your long-term investment and decreasing your debt. The liabilities side of your balance sheet is equally important in maintaining a healthy personal financial position.

In South Africa, commercial pursuit generally becomes lackadaisical and pedestal in December as most of the decision makers flee to the coast for relief. It makes it an ideal time to submit yourself to a financial check-up to review how you have done through the year and identify areas of corrections.

Reviewing and recalculating your net worth annually is one way to monitor your financial health. Is your net worth increasing and when you plot it over five years is the momentum up, sideways or declining?

What does your balance sheet show? Are you are reaching your goals? Do you have adequate liquid assets? What is your level of consumer debt? Are you saving for retirement and your other financial goals?

They say if someone does not know where they are, the best map in the world will not help them get where they want to go. A personal financial plan should be looked at from four perspectives, namely budgeting, spending (cash flow management), investing, and periodic review. The most important aspect of the road to financial freedom is reviewing the results we achieve through planning and budgeting, and then making adjustments to the plan as warranted.



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Did you make use of a budget in 2012? A budget is a road map for controlling cash flows, specifically income, savings, and expenses.  Your budget should accurately match your financial abilities with the financial goals. 

If you’ve already established financial goals, evaluate whether those goals still make sense in your current circumstances. If you are still in your twenties or thirties, retirement probably seems vague and far off at this stage of your life. To leave your retirement decisions to some welfare state somewhere may become the most expensive decision you will take in your lifetime.

Match your financial budget and goals to your values. A budget is the process of making sure your resources are used for the things that matter most to you, your personal goals. It should be like a biblical star to set your sights by like the wise men seeking the newly-born king and not a sjambok to beat yourself with.

It takes discipline to follow and is probably the most important single factor in helping you to attain your personal goals. There are many methods to track spending particularly that which leaves a paper trail like a credit card. In financial matters, avoid rash or hurried financial decisions.

Two major components of tracking how you are doing financially can be broken down into your income and debt levels. With net worth you are essentially adding up all of your assets and measuring them against all of your liabilities. This number can help you track your financial progress from year to year.

Calculating your debt to income ratio is as simple as adding up all of your debt and subtracting it from your income. Some calculations may exclude things like mortgage payments and property taxes, but to really get a complete picture it is best to include everything.

It is important to provide for our financial future but personal financial planning and budgeting is not only about the future. We must not lose sight of the fact that we live in the present. Life is much more enjoyable when we have planned our finances in such a way as to remove the stress associated with the uncertainty caused by unexpected financial burdens.

Whether in business, sports, school, or any area of life, you cannot improve what you do not measure. The same rule applies to your personal finances.

The first step in your financial check-up is evaluating your financial goals. Have you made progress on them in 2012? If not, where have you fallen short? Take some time to revisit how your portfolio is allocated. Calculate the return on each of your stocks, or cash equivalents. Are you satisfied with their performance compared to the rest of the market?

Reflect on whether you have specific objectives for your portfolio, and whether your asset allocations serve those objectives. Your weighting will be very different if you plan to retire in 15 years than if you plan to retire in five. Evaluate your protection of your assets. It is important to protect your income earning ability which is one of your greatest assets of all.

Performance measurement can give you the benchmarks and feedback you need to identify areas of improvement and guide you on your way to realizing your goals. Measuring your net worth allows you to see how well you preformed in relationship to your goals and serves as a new baseline upon which to build in the upcoming year.

A complete December review and evaluation covers current income, special financial needs in the next 12 months, and current risk tolerance. When the review is completed, you can put together your investment plan for the new year and set your net-worth goals for 2013. Put these goals in writing, follow my plan, and monitor my results throughout the year.

Tafirenyika L. Makunike is the chairman and founder of Nepachem cc (www.nepachem.co.za), an enterprise development and consulting company. He writes in his personal capacity


 
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