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Getting your financial house in order

Your finances is one area in life where it pays to be organised. Esther Goh explains how to tame paper overload and get up to speed with insurance, wills and other pesky necessities. 

Be honest. Have you ever missed a bill payment? How many different bank accounts do you have? And when did you last take a look at your insurance policies?

They say a messy desk is the sign of a creative mind. Clutter at home, however, can quickly become overwhelming; in particular, being financially disorganised can cost you big time. A little time and effort put into auditing this part of your life now will help you take back control – just think of it as spring-cleaning your financial house.

Get a system

First things first. Even if you’re not naturally organised, systems are your friend. Figure out a way to deal with incoming bank statements, bills, notices and receipts. It’s infinitely easier to take charge of your finances if you have a dedicated storage space: a drawer, folder or cubbyhole. You might want to keep separate files for insurance, investing, taxes, credit cards and so on.

Whatever you do, keep it clean and tidy, file everything away as soon as it comes in (don’t let papers pile up in the hallway or bedroom!) and keep other documents separate. If it helps, buy an attractive file box or small filing cabinet to get you started. 

Once you have a routine going, it’s all about maintenance. You might set aside one night a week (try ‘Admin Tuesday’) to pay bills, revisit your budget, look at bank statements and make a list of anyone you need to contact during work hours.

Make life easier by simplifying and automating wherever you can. Don’t open bills until you commit to dealing with them; better yet, get statements by email and pay them online to cut down on clutter. But please, learn from my experience and ensure your first electronic bill actually reaches your inbox! “It went to spam” is the equivalent of “The dog ate my homework”.

Another tip, courtesy of finance blog www.WiseBread.com, is to set up email folders for bills. “You might consider setting up a computer reminder to be sure you are regularly checking the folders. So, for example, on the 10th and 20th of every month, you open those folders and pay all those bills.”

Perhaps set up direct debits to pay bills automatically from your bank account or credit card. These differ from automatic payments, which are initiated by you, and are best for payments that don’t change, such as rent. Direct debits involve you authorising an organisation to deduct money from your account, and are more commonly used for bills that
vary from month to month.

If you go down that route, you’ll still need to stay alert. Otherwise, you might find your account unexpectedly overdrawn (cue penalty fees), or you’re a couple of months behind because your credit card expired and you forgot to update your payment details. Or (true story) you might even overpay what you owe on a student loan.

Also, take stock of all the financial accounts you hold and cancel those you no longer use. How much are you paying in bank fees? Are there better options? “Consolidate accounts where possible. Reduce the number of credit cards you carry. If you have bank accounts at multiple locations, combine them at a single bank. The fewer accounts you have to track, the easier it is to stay on top of them,” writes JD Roth, founder of the personal finance website www.GetRichSlowly.org. 

There’s no requirement for you to keep your bank statements, so it’s up to you as to whether you think they’ll be useful. (Personally, I found mine handy when a former landlord accused us of being a week behind on rent.) Otherwise, shred, baby, shred.

Okay, so now you’ve got your day-to-day routine down pat, it’s time to think about the bigger picture. Whatif the worst was to happen?

Insurance

The basic premise of insurance is that you pay a certain amount of money to a company and in exchange they shoulder certain risks (accidents, illness) on your behalf. According to the Insurance Council of New Zealand, the idea is to return you to “the same position you were in before a loss – no better, no worse”. As much as it hurts to fork over those premiums every year, you’ll be glad you did if you ever need to make a claim; you can’t buy insurance after you need it.

So what kind of insurance do you need, and how much? Most people will benefit from basic contents and car insurance. The more dependents and assets you have, the more you’ll need to look out for your responsibilities. 

Very few people can afford to lose an income or a house, especially if they have a family. There’s mortgage protection insurance to cover repayments if you can’t work, income protection insurance to pay a percentage of your earnings if an illness or accident puts you out of action, health insurance for private medical costs, and disability and life insurance that pay out a lump sum respectively if you become disabled or pass away. Heck, there’s even insurance for pets, in case Fluffy needs surgery.

Weigh up the risk of not being covered against the cost of insurance. Ask yourself: what are the chances of this happening? How would I cope in that event? If you can’t afford for something to happen, you need insurance for that situation.

Unfortunately, insurance is a field plagued with jargon. Shop around and compare the fine print carefully so you know exactly what you’re covered for. It’s also worth ringing around every year before renewing your policies to make sure you’re getting the best deal. 

Agreeing to pay a higher excess can help reduce upfront premiums. Another way to save is to bundle policies with the same insurer; having your house, car and contents covered by one insurer can yield big discounts. 

Wills

It’s not the cheeriest of topics, but none of us live forever. Here’s what the New Zealand Law Society (which publishes an excellent brochure outlining the basics of wills) has to say on the matter. “Even if you don’t own major assets, you can quite quickly build up possessions that can have monetary or sentimental value to you and to others. You may have some money in a savings account, a car, furniture and household items, a good stereo or home entertainment system, a life insurance policy, some jewellery and so on. A will allows you to decide what will go to whom, even if your possessions have sentimental rather than financial value.”

No matter how old you are, if you pass away without a will, it can cause your family unnecessary stress and cost. In this case (also known as dying ‘intestate’), the law provides a list of beneficiaries, starting with a spouse, children, parents and siblings. If there are no relatives, then your estate becomes government property.

Don’t have a will? There’s no better time than the present to fix that. DIY will kits are available online or through Whitcoulls, but it might pay to get your will checked by a professional to ensure all is in order. A couple of New Zealand banks also offer a free basic will service, but most people turn to Public Trust or to a lawyer. Try the Yellow Pages under Trustees, Executors and Attorneys.

A will must be witnessed by two other people, and needs to name both an executor and a trustee. An executor obtains probate of your will (court authorisation to administer your estate) and can be a trusted friend or family member. The trustee carries out the instructions from your will. 

Otherwise, dust off your will and check it’s up to date. Consider funeral arrangements, any assets you have, family members you want to provide for, specific bequests for meaningful items, and so on. Parents of young children should also think about guardianship. Who would you trust to act in your kids’ best interests – who shares your core values or has regular involvement in your children’s lives? ‘Testamentary’ guardians, often a relative or family friend, are tapped in a will to make the big decisions about a child’s care when the parents no longer can. That doesn’t automatically give them the right to provide day-to-day care though; they may need to apply for a court order. And if your brood expands, or you’re about to head overseas or take up hang gliding, make sure your named guardian is still happy in their role.

The Law Society recommends reviewing your will regularly – say, every five years – and whenever your circumstances change. Having a child, buying a house, entering a new relationship or any major change to your assets or debts is also a good time to revisit it. If you marry or enter a civil union, any will made before that is automatically revoked unless it specifically states otherwise. Entering a de facto relationship, however, does not affect an earlier will, so a new partner may not be entitled to anything if you don’t update your existing will. 

Be sure to keep a copy of your will in a safe place and let your loved ones know how to access it. If they can’t find it, they won’t be able to carry out your last wishes.

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