09 December 2021
The end of the year is a great time to start thinking about the financial habits you want to take into 2022.
Even if it’s just implementing one or two resolutions, having the right financial mindset can get you off to a good financial start to 2022. You’ll gain better financial control and reduce financial stress, contributing to your overall mental and financial wellbeing.
Here are 5 financial new year's resolutions to ring in the new year with:
Most people can count one or two things they regretted buying during the pandemic - be it an exercise machine or a piece of kitchen equipment. Splurging on items on a whim might bring you joy in the short term, but if you make it a habit, you can end up eating into your emergency fund or your long-term financial goals.
When you have a budget, you’ll know just how much you have to spend on the things you want without compromising your savings and investments.
To create a budget, first, track your expenses over the past few months. Find out how much is going towards your:
Needs, such as food, rent, and utility bills
Wants, such as entertainment and recreation
Savings, investments, and debt repayments
Then, use this information to understand how much you should budget each month. Next, see where you can cut back on non-essential spending to increase your savings amount.
Alternatively, you can try using the 50/30/20 rule as a guide: Reserve roughly 50% of your take-home pay for your day-to-day needs, 30% for your wants, and 20% for your savings, investments, and debt repayments. Keep in mind that these proportions only serve as a guide, so be sure to make any adjustments that help you reach your long-term financial goals sooner.
Once you’ve decided on how much money to allocate to the 3 buckets, stick to it!
If you’re ringing in the new year with credit card debt, it’s time to consider making a plan to pay it off.
The average credit card interest rate in the UAE is 37.75% per annum. If you only repay the minimum amount on your credit card at the end of each billing cycle, you’ll be working extra hard to pay off the interest fees, which can snowball quickly.
Say you have a credit card debt of $5,000 USD. If you only pay off $500 USD per month at 37.75% interest per annum, it’d take you one year and one month to pay off the debt, and it’d cost you an extra $1,097.57 USD!
Given how costly credit card debt is, it's critical you pay off any credit card debt as fast as possible, even if it means cutting back on extra spending for a few months and holding back on investing. That's because credit card debt is likely to accumulate interest at a higher rate than any other returns from your investments.
Credit cards are only worth their cashback and reward points if you can pay them off in full every month.
If the pandemic has taught us anything, it’s that you can’t predict an emergency. That’s why it’s important to save up for an emergency fund of at least 6 months’ worth of expenses. That way, if you lose your job or have a health emergency, you won't have to cash out any of your long-term investments, such as your retirement fund.
If you don't have an emergency fund or your existing fund isn't set up in the best way (e.g. it doesn't earn enough interest or requires multiple conditions to do so), consider putting your savings into StashAway Simple™, our free cash management portfolio.
The new year is an opportune time to revise your financial goals and set new ones. If your financial goals were too ambitious and you didn't meet them last year, don't worry - now's the time to get them back on track.
With a dedicated savings plan, you can design your life for your near-, mid-, and long-term goals. That may be for an upcoming holiday, a house deposit in 5 years, or retirement in 30 years.
You can meet each goal with a unique savings and investment plan depending on:
The time horizon you have to achieve your goal
The amount of capital needed to achieve your goal
For short-term goals, you might only save your cash in a low-risk, high-interest savings or cash management account. A low-risk account safeguards your cash from any short-term volatility. It ensures that your funds are available when you need them.
But for long-term goals, investing your money in a diversified investment portfolio allows your capital to benefit from an appropriately higher level of risk and return over a longer period. Any interest, dividends, and market returns on your principal amount can be reinvested and compounded over time. These compounded returns start to "snowball" and grow in the long term, helping you reach your goal faster than if you were to leave your savings in cash.
Let’s say you want to save up $100,000 USD for a down payment on a house. If you were to invest $2000 USD per month with moderate annual returns of 6%, you’d reach your goal in your 4th year of investing and have $9516 more than if you’d left your money in cash.
Financial markets are volatile. The best way to combat that volatility and not overexpose your money to any single market condition is to invest regularly, or dollar-cost average.
When you invest every month, sometimes you'll invest when the markets are high, and sometimes when the markets are down. Since the markets have an upward trajectory in the long term, you'll soften the impact of mistiming the market.
Investing regularly also gives your investments time to grow with market appreciation and compounded returns. If you only started investing later or waited to time the market, you’d have to invest more each month to get the same returns.
Don’t think of investing as foregoing your spending capacity but building long-term wealth. And, it doesn't have to cost you a lot of time and money. We offer intelligent, low-cost investing that doesn’t require any minimum transfer amount.
Here’s a tip: set up an automatic transfer from your bank account to your investment account so you never have to think about investing!
If you've decided to commit to any of these financial new year's resolutions, it's important to stay motivated and celebrate milestones. Try sharing your plan with your loved ones to get their support, automate your new financial habits wherever you can, and set up reminders in your calendar to keep yourself on track throughout the year.
And remember, you can always review your resolutions if your financial circumstances change rather than waiting for the next year. Good luck!