8 December 2012

Uganda: Have You Stuck to Your Financial Targets This Year?

The year is drawing to a close, making it an opportune time to take stock of your personal financial performance in the last 12 months.

Typically, most people use the beginning of the year to set plans and commit to dropping some of the poor money habits and adopt better ways of managing their finances.

If you set short to long-term goals at the beginning of the year, now would be a good time to assess your performance.

You can choose to review your performance in terms of the following parameters: planning, saving, earning, borrowing, spending, investing and retirement planning.

When it comes to managing finances, planning and sticking to the plan is crucial in achieving your goals. Assuming that you wrote your plan on paper, it would be interesting to assess how far you stayed the course of your plan.

Have you adjusted your plans during the year? If the plan was revisited, it should be adjusted to take into account the new period.

Some people opt for plans that span beyond the calendar year, but review them on a quarterly basis and then do an annual check. You can adopt this if it works for you. In case you failed in some areas, it's important to learn from your mistakes and try to do it better in the New Year.

Saving is another important area to look at and gauge your performance. Usually, some people use the New Year as a starting point to improve their savings.

Unfortunately, as the excitement of a 'new beginning' wears off, the saving plans are usually abandoned.

The most practical method of forcing yourself to adopt a habit of saving is by automatic deduction directly from your salary or instituting a standing order with your financial institution.

The advantage of saving is the peace of mind that comes with the ability to meet any emergency, planned investment or expenditure in the future. More to that, a savings buffer gives you options and cushions you from any cash squeeze.

For that reason, if there is any habit that you must adopt in the coming year, it should be saving. If you managed to meet your saving target this year, try to push yourself harder by increasing the amount you put away per month.

Anyone saddled by high levels of debt, particularly consumer debt, should put a debt reduction plan as a priority in the coming year.

In your review, assess whether your debt has reduced. If you took on more debt to finance expenditure, you have to seriously think about how to reduce it in the coming year. Remember that this debt was not deployed to generate any income, thus constraining your ability to meet other obligations. On the other hand, if you borrowed to invest, assess whether your returns are allowing you to service your loan obligation.

Next, assess the performance of your investment, assuming that you made such initiatives during the year.

Take a look at the return on investment to determine whether it is in line with your projections. If you, however, discover that you are instead propping up the investment, you may consider cutting your losses at this point.

The other key consideration is retirement planning. How are your plans progressing? Have you considered investing in assets that will provide the cash flow to finance your lifestyle when you are no longer active?

Do not fall in the trap of consuming all you earn because you expect your employer to look after you during retirement?

Given the changing economic environment, these plans may not be sufficient. That is why you need to embark on making plans for retirement.

Ultimately, if you managed to stick to your plans during the year, you should set higher targets. On the other hand, if you fell short, now is the time to reorganize and adapt in line with your current situation, with a view of making changes that will improve your financial status.

The writer works with Bank of Uganda

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