In the news: Financial awareness begins at home

A new year is the perfect time for a review of personal finances
by Brian Gorman


Finance professionals should not underestimate the importance of having their own money matters in order.

The finance sector is as prone as any to the problem highlighted in the adage about the cobbler’s shoes. Various versions of this proverb exist, including 'the cobblers’ children go barefoot'. The basic idea is that the cobbler is so busy mending other people’s shoes that they neglect their own and that of their family.

The beginning of a new year is perhaps one of the best times for financial professionals to review their own affairs. This may also help them serve their clients better.

Getting into the habit at a young age can help, according to an article in Singapore-based Today by Lorna Tan, head of financial planning literacy at DBS Bank.

“As the new year begins and in the light of a high inflationary environment and economic uncertainties, it is an opportune time for everyone, especially young adults, to spring-clean their finances, take note of what has been done and set up a robust plan,” she writes.

SavingsShe offers several tips that will help with personal finances: the first is to automatically deduct a portion of your income each month as savings, before you spend what is left. Tan adds: “With internet banking and digital tools these days, you can do this hassle-free and monitor your cash flows.”

She recommends putting away at last 10% of your monthly income and advises that it is also prudent to set aside three to six months of expenses as emergency cash for a rainy day.

The second tip is to set life goals. Besides taking stock of your current situation, include your mid and long-term goals.

 It is also important to inflation-proof your savings. “While emergency cash should be kept liquid, keeping all your savings in a simple savings account will not preserve your purchasing power, especially in a high inflationary environment,” writes Tan. She identifies some instruments to consider for the more liquid and low-risk portion of a portfolio: higher interest-yielding savings accounts, Singapore savings bonds, treasury bills, and money market funds.

Tan’s other tips are to assess the need for insurance, to start investing early, to empower yourself with financial literacy and to start planning for retirement as soon as possible.

UK tax thresholds frozenMuch of the above will be applicable to many countries, but those in the UK need to be aware of some specific challenges in their personal finances in 2023, according to an article in The Money Edit, written by John Fitzsimons.

"A host of tax rises are on the way in April,” he writes. Income tax thresholds will be frozen, so the point at which you start paying 20% tax will remain at £12,570, "while the threshold for paying higher-rate tax (40%) will stay at £50,270", meaning that "millions of workers will be dragged into higher tax thresholds when they get a pay rise in the coming years," writes Fitzsimons.

Among the other changes he highlights is the rise in the national living wage in April 2023 to £10.42 an hour, from £9.50.

The article also highlights the importance of being vigilant about scams. “We can expect scams of 2023 to include some old familiars such as cryptocurrency investment scams and online dating scams, but also new rackets involving the cost of living payments,” he writes.

Changes in US consumer behaviourMeanwhile, research from Ramsey Solutions, a not-for-profit company that offers financial advice, shows how higher inflation has changed the way US consumers are spending and managing their money. An article published on Nasdaq, written originally by Christy Bieber for Motley Fool, highlights some of the research findings.

  • 70% of survey respondents were spending less on vacations in the second quarter of 2022. This is a trend that continued from the start of the year.
  • 33% said they had reduced the amount they were saving.
  • 22% had reduced their retirement investment contributions.

“These financial decisions can impact your life both now and in the future if you're making them,” writes Bieber. “While not taking an expensive vacation will make your life less enjoyable in the present, cutting back on retirement savings ... could have a more serious long-term effect on your financial stability.”

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Published: 12 Jan 2023
  • Soft Skills
  • financial planning
  • financial education

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