One Fool reviews his progress in 2006 and then makes his financial vows for 2007.
At the start of a new year, it's natural to recall the highs and lows of the previous twelve months, and to review one's successes and failures. Hence, each January, I tend to examine my money management in the preceding year, in order to learn my lessons.
Weighing up 2006 as a whole, I have to say that I'm quite pleased with the overall outcome, because my total wealth increased substantially over the year. This is essentially down to two positive results: another decent performance from the UK stock market, plus the success of the small business which I started towards the end of 2005.
However, when I dig down into the nitty-gritty, there are still a few things that I could do better, so there's still plenty of room for improvement! For your amusement, here is a brief review of my resolutions for 2006, plus my new vows for 2007:
1. Borrowing: full marks
Having been buried under the weight of a mountain of non-mortgage debt on two separate occasions, my permanent goal is avoid paying interest to lenders. They've had more than enough from me over the years. Happily, I'm delighted to confirm that I didn't pay a single penny in interest in 2006, although I did make full use of 0% credit cards to beat the banks, plus I earned about £10 a month by using a cashback credit card. If you'd like to take the leap from borrower to saver, read Drive Out Your Debt Demons today!
2. Budgeting and bargain-hunting: good results
As a freelance writer, the more articles that I write, the more money I earn. Hence, during 2006, I set out to boost my income by working harder. Happily, my expenses grew at a much lower rate than my personal income did, so I have extra disposable income to build future financial security.
Another achievement is that I managed to keep my current account in the black and avoid going overdrawn for yet another year. Naturally, this took a bit of forward planning, but this effort is worthwhile when you consider the astonishing cost of accidentally going overdrawn.
In addition, I'm still a wiser miser, so when I do shell out my hard-earned cash, I'm careful to shop around to get the biggest bang for my buck. My budget was boosted by two periods of extreme budgeting in January 2006 and after the football World Cup, when I spent just £3 over the course of an entire month. Beat that!
3. Pensions: a failure
I'm afraid that, technically speaking, I scored zero out of ten in this category, because I didn't contribute a single penny to a pension during 2006. This is largely because my income is highly irregular, so I only pay myself a modest monthly wage, which makes paying into a pension rather tricky. However, now I have a clear idea of how much I have available, I'm poised to open a DIY pension known as a SIPP, or Self-invested Personal Pension -- I wrote about my search for a SIPP in Perking Up Past Pensions. Thus, pensions are back on the menu in 2007!
4. Protection: another disappointment
Again, this is another area where I scored 0/10 in 2006, but with a wife and two young children relying on me and my income, I need some safeguards against misfortune.
As I said in Look After Your Greatest Asset, almost all spouses/partners and, in particular, parents of young children need to buy some form of insurance to ward off the financial damage caused by upsets such as serious illness, death and so on. Originally, I had intended to buy income protection insurance to provide cover against long-term illness or injury, but my modest monthly salary makes this impractical.
Furthermore, my search for cheap life insurance was held up by a painful medical complaint which is currently under investigation. Oh well, perhaps I'll have better luck in 2007 -- meanwhile, I have a cash cushion large enough to pay the bills for many years if I'm unable to work.
5. Saving and investing
As for saving, it's another big, fat zero yet again, because I didn't add anything to my existing cash on deposit. However, I already have a large emergency fund, so I can't see the value in adding more to this pile in order to earn a measly 3% a year after tax.
Instead, the majority of my disposable income in 2006 went straight into the stock market, either by buying shares in individual companies, or by investing in a low-cost index tracker. Of course, my wife and I both contributed the maximum to shares ISAs in order to keep the taxman's mitts off our dough!
Of course, my investment progress was far from plain sailing -- frankly, it rarely is! The big disappointment of the year was my largest holding, pharmaceuticals firm GlaxoSmithKline (LSE: GSK). GSK underperformed the Footsie for yet another year: the FTSE 100 index rose 10.7% in 2006, but the GSK share price fell by 8.5%, which put a big damper on my portfolio. Also, an investment in online-gaming firm Empire Online (LSE: EOL) proved to be a gamble too far, and I suffered a large loss when the shares dived following anti-gambling legislation in the US.
On the plus side, I kept my head during the stock-market dip last summer. In the May to October slide, the blue-chip FTSE 100 index was down by more than a tenth (10%) at one stage. During these jitters, I went bargain hunting with a hefty pot of cash, and made some handsome profits as a result of being greedy while others were being fearful (to quote investment guru Warren Buffett).
Overall, thanks to the woeful performance of GSK and a large holding in index trackers, I doubt that the shares which I owned at the start of 2006 beat the Footsie over the course of the whole year. However, subsequent purchases did splendidly, so it's a mixed result. Hence, my entire portfolio is currently under extreme scrutiny before I weed out the weaklings and add to the winners...
Finally, I've failed miserably to improve my general administration and attitude towards paperwork (boring!). Still, in 2007, I hope to stop building paper mountains and start filing important documents properly!
Good luck with your financial resolutions: here's to a great 2007!
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