The extraordinary global events of 2020 have rocked budgets, sapped savings and frustrated fiscal aspirations.
But with the calendar clicking towards 2021, the new year presents an opportunity to review personal finances and re-assess savings and spending goals.
Three experts who regularly contribute to these pages offer some tips framed by a pandemic-tainted year that has shaken many and prompted plenty to re-examine their financial strategies.
Should we give our finances a new year spring clean?
Ambareen Musa, founder and chief executive of souqalmal.com, says there's no better time to take stock of where you stand financially, starting with a thorough review of your budget and expenses.
She suggests a few questions to start this exercise, such as whether you managed your expenses reasonably well in 2020, exceeded budget limits or met your savings goals.
“Once you figure out where you stand, list your expenses and tweak your budget so you can use your income more effectively,” says Ms Musa.
“Set your priorities with the most basic outgoings at the top – such as mortgage/rent, utilities and phone bills, groceries, school fees and minimum credit card payments.”
Once you have these covered, Ms Musa suggests moving on to saving towards your “rainy day fund for unexpected expenses”.
“With whatever income you have left over, use your own judgement when allocating it towards ‘wants’ versus making extra payments towards your debt or setting aside a higher amount towards your savings pool.”
For many, resetting and taking control of their financial situation in 2021 is more important than ever, says Carol Glynn, founder of Conscious Finance Coaching.
That includes budgeting, which she feels is all about clarity and awareness rather than something restrictive, shameful or self-critical.
“When it’s viewed and approached with that restrictive, strict and cut-back mindset, it’s similar to a detox diet,” she says.
“For me, budgeting is about knowing what you have, where you are spending, saving and earning.
“It provides tangible, real information to help you make informed decisions about what you want to do with your money, how you spend your time and the direction you want to take in your life.
“It’s a positive exercise, the purpose of which is to help reduce stress and worry, not increase it.”
Ms Glynn describes the process and its outcome as “an enabler to a better relationship with your money”, leading to informed decisions, more confidence and more enjoyment from your cash and life.
“What better time to start this positive habit than the start of a new year,” she adds.
One thing should be clear, however, is that none of us know what 2021 will bring, according to Steve Cronin, SimplyFI board member and founder of expat personal finance education website DeadSimpleSaving.com.
“There is light at the end of the tunnel, but we can’t see how long the tunnel is,” he says. “This makes planning more important than ever – and it needn’t be tedious.”
Mr Cronin recommends assessing your current financial situation, namely cash and investments anywhere in the world, loans and interest rates, all your income and a reasonable understanding of your expenses by major category.
Mr Cronin asks: “Did anything work out well? Did you make any mistakes or face unexpected problems? Did you rely too much on a bank, financial adviser or partner to take control of the finances without you understanding what they were doing and charging you?”
Setting financial goals for 2021
We should understand our personal values – as well as our goals, says Ms Glynn.
“It helps you understand what is important to you … what your ambitions, dreams and hopes are. Then, setting goals is much easier.”
Ms Glynn suggests documenting three goals, why you want to achieve each and what’s required, how you’ll measure progress, anticipated obstacles and how to overcome them.
“Best of all, write down something you will reward yourself with when you achieve that goal,” she adds.
Ms Musa says now is a good time to go through your savings, investments, loans and credit cards with a fine-toothed comb – and figure out how to boost your capacity to save in 2021.
Cash can then be stowed in a separate savings account, a high-yield fixed deposit, or by remitting money back home in pursuit of higher returns.
“Review your credit card reward statement to see if the rewards outshine the annual fee,” she recommends, with a view to finding alternative cards with better rewards.
And with interest rates hitting new lows, Ms Musa suggests considering loan buyouts and mortgage refinancing.
“Compare interest rates across different banks to see if you can switch over or convince your existing lender to cut you a better deal,” she says.
Should we take more risk to recoup 2020 deficits?
There’s nothing worse than trying to catch up with your goals by taking more risk if you’ve lost money through bad investments, says Mr Cronin.
“There is a big risk that you will lose even more,” he warns.
“We see this particularly with people near retirement losing money in savings plans – they then take more risk and put themselves in a very vulnerable position.
“Instead, you should focus on earning more, spending less and investing more, but investing it very sensibly in a global stock fund and a global bond fund.”
2020 saw emerging asset classes and platforms, including cryptocurrency, peer-to-peer lending and property crowdfunding, gain ground in some portfolios.
Again, Mr Cronin sounds a note of caution.
“Chasing what is fashionable at the start of the year is a great way to lose money by the end of the year,” he says.
“If you must scratch the itch of investing in the latest high-growth opportunities, limit the total to 10 per cent of your portfolio. Have fun with that – Tesla, Bitcoin, whatever – but make sure if it bombs, it doesn’t derail your future.
“Feel free to take a gamble, but don’t bet the house … these may not be the investments we are talking about warmly at the end of 2021.”
Lessons for 2021
Many personal finance experts highlight an emergency fund – at least six months' expenses in bank accounts, spread between the UAE and elsewhere.
Ask yourself whether you have a financial safety net so you and your family are protected for a period of time should you lose your job, need to suddenly move overseas or have a large unexpected financial burden, says Ms Glynn.
“If not, then decide how many months of expenses you need to set aside to provide this security and add it to your financial goals.”
Having a cash buffer got many people through 2020 when they lost their job or took a big pay cut due to Covid-19, says Mr Cronin.
“It will help you sleep at night, even during the roughest personal and global crises,” he says, while encouraging us to learn in 2021 how to take control of our money and invest sensibly.
“It takes much less time than you think.”
Taking a good look at our personal and domestic finance habits, approaches and aspirations after such a turbulent year makes considerable sense.
Reviewing, decluttering and reorganising those finances now could lead to us being in better financial shape next year, Ms Musa says .
“Spring cleaning your finances can not only help you better manage your money but also unlock completely new savings avenues,” she says.
“You can cancel unnecessary subscriptions, do away with expensive memberships, and sell stuff you don’t need.”
By simply re-prioritising and repaying debts more systematically, you could also save significantly on interest payments.
“There’s a lot you can do to be in a better financial position to prepare for uncertainties in the near future,” she adds.
