The New Year is here with us. Last year was a season of financial challenges with the inflation taking its toll on many household incomes.
Albeit gone, there are many lessons learnt as you plan your financial goals in 2013.
Whether you have trailed the financial goals you had set in the year 2012 or surpassed them, you certainly need to review them to reflect the economic and social changes.
Starting from your monthly budget, review it to cater for increased prices of household items.
If the budget is not reviewed as household prices go up, you might have to reduce the amount of items that you purchase monthly.
To review your budget, you can either increase the amount allocated for each expenditure or ration on other items to accrue some excess cash to channel to those goods whose prices have gone up.
For those other budget items that sometimes undergo annual review of rates such as rents, make adjustment to reflect the same. If the rent rates have been reviewed upwards, make adjustment by either increasing your budget allocation for the rent or consider moving to a cheaper house.
With the prevailing fluctuation of fuel prices, review your allocation for transport to avoid any future financial distress that would arise from increased fares.
In terms of insurance plans, you also need to review your premium rates and the size of your insurance cover that can sufficiently give you coverage as well as suit your pocket.
Obviously, your insurer could be reviewing the premium rates upwards in line with the prevailing inflation rates to protect your sum assured. This is usually done after every anniversary of an insurance policy.
Remember that erosion from inflation would reduce the value of your sum assured and it may not be sufficient to cater for your family as planned.
This means that a reduction of the premiums by inflation would over time reduce the value of any money paid to your dependants. And that is why your insurer reviews your premium upwards each year.
Therefore, before you act, you need to see how you will balance between protecting your finances from effects of rise in inflation and reducing your financial burden of paying higher premium rates every anniversary of the policy.
You should also be cautious that to carry on with increased premiums, you will need additional source of income or increased income. Otherwise, your premiums would run into arrears and consequently it would lapse and you might lose your benefits especially if your policy has no cash value such as term life policies.
As you pick on the option, beware that by doing so, your sum assured will be exposed to the effects of inflation and fortunately you would be able to save some cash to meet your other financial obligations.
For instance, if you find the premium rates slightly high above what you can afford, you can approach your insurer and lower the size of your cover slightly to make the premiums affordable.
On the other hand, if you experience a material change that requires an upward increase on the amount of insurance cover that you need such as a birth of a new born or marriage, you can approach your financial advisor to help you determine the amount of insurance cover would be sufficient and the amount of premium that you would come need to pay.
Next, if you find the frequency of premium payment not convenient to you due to either delay in salary payment or irregular income, you can ask your insurer for a suitable premium frequency either quarterly or annual that would give you adequate time to organise your finances.
Sometimes, you could be having a group cover by your employer, if this is the case, consider having a separate individual cover to protect your family from any financial loss that could result from any uncertainty that may knock on your door like loss of a job.
For your investment plans, take stock of the returns earned in the past year and possible opportunities this year. If your investment returns have been relatively lower than your target, consider investing for taking long-term.
But if you have been experiencing losses in your investment over the year, it is not the time to coil up in a ball and mourn, but consider spreading your investments across various counters.
Packing up to exit is not advisable without an exit plan since you can incur huge losses. For instance, if you are see share prices in the stock market falling, this is an opportunity to inject more capital by taking advantage of the lower prices.
Take caution not to be carried away by greed to liquidate your investment to invest in those that promise to offer high returns overnight. These could be investment scams.
Remember that the success of your financial plan relies on your financial discipline.
Mr Opiyo is employee financial advisor & coach with Tolerance Employee Financial Advisors Limited.