Financial planning: What steps should I take to cut uncertainties this year?

Life's uncertainties underscore the importance of establishing and maintaining an emergency fund. PHOTO | SHUTTERSTOCK

New Year celebrations saw most of us throng social media spaces with ideas, snippets, savings challenges and ways to have a semblance of financial stability amid the challenging economic environment. Did January zoom by or is it just adulting hitting hard? Either way, it is never too late to focus on your financial goals.

While the economic climate remains uncertain in 2024, certain principles can continue guiding our management of personal finance. As Covid-19 showed us, we can never fully prepare for a crisis, and there is never any perfect blueprint on how to do so. However, we need to effectively prepare to successfully navigate any unforeseen storms.

Mind high-interest debt

One of the threats to personal finances is the acquisition of high-interest debt, notably through shylocks and bank/Sacco loans. Debt, when used responsibly can be a valuable financial tool.

However, overreliance on it can perpetuate a cycle of debt that is hard to overcome. The compounding nature of interest rates can stealthily erode wealth over time as it might, in some cases, mean disposing of assets to clear loans, thus turning seemingly manageable debts into financial quagmires.

You should be aware that loans are just but a means to an end, not an end in itself and, therefore, a cycle that needs to be broken at some point.

Budgeting as a lifeline

In this Gen Z age dominated by instant gratification, the temptation of impulse spending is ever-present. This has resulted in most individuals riding in massive debts that weigh down their ability to save or even make some noteworthy investment.

Here, discipline comes to the fore as budgeting becomes paramount as it empowers or prevents one from the allure of impulse purchases, leading to lasting financial habits. A well-crafted budget is a lifeline, providing a clear roadmap for managing income, expenses, and savings goals.

Do you have an emergency fund?

Life's uncertainties underscore the importance of establishing and maintaining an emergency fund. Failing to do so leaves individuals vulnerable to unexpected financial shocks, be it medical emergencies, car repairs, or sudden job loss. Financial stability necessitates the creation of a robust emergency fund, equivalent to at least three to six months' worth of living expenses. This financial cushion safeguards against unforeseen events and fosters peace of mind in the face of uncertainties.

Health cover

Additionally, neglecting health and insurance needs is akin to leaving one's financial well-being unfit. Inadequate health coverage can result in significant out-of-pocket expenses during medical emergencies. A thorough evaluation of insurance coverage is imperative in 2024, considering factors such as life and health insurance to create a robust financial defence against unforeseen occurrences.

Diversify investments

Undertaking strategic investments has always been the cornerstone of wealth accumulation for many individuals. However, uninformed decisions or neglected investments can hinder financial growth. The guiding principles to ensure that your investments are always protected include diversifying investment portfolios, staying abreast of market trends, and seeking advice from financial professionals before making substantial investment decisions.

Financial discipline

Lastly, living within one’s means is the most crucial shield for better financial well-being. It is important to resist the allure of constant upgrades and luxuries, especially when living on a tight budget. It involves intentional spending, saving the excess income, and channelling it towards future financial goals such as homeownership, education, or retirement. In the year ahead, cultivating the discipline of living within your means is a powerful shield against the erosion of financial stability.

Financial planning is never a static endeavor, but a course that requires regular check-ups and adjustments. As you chart your financial course this year, it is important to note that regular check-ups, encompassing assessments of progress toward goals, budget revisions, and adjustments to investment strategies, form the bedrock of a resilient and adaptive financial plan.

The writer is a financial communication specialist : [email protected]

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.