How to Use a Financial Reset to Improve Your Finances Dramatically

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A financial reset provides a fresh start by helping you regain control of your money and create positive momentum in your wealth-building journey.

It allows you to evaluate your financial situation realistically and aggressively.

This process can help you identify areas for improvement which will ultimately boost your finances.

This article was written by a Financial Horse Contributor.

Essential Steps for Financial Reset

Comprehensive Budget Review

Start by thoroughly analyzing your current spending patterns and creating a new budget that prioritizes essential expenses.

Ensure that essential spending remains at or below 50% of your take-home pay, following the 50/30/20 rule for optimal allocation.

The 50/30/20 rule is a straightforward budgeting strategy that helps allocate your after-tax income across three main categories:

50% for Needs

  • Essential living expenses like rent/mortgage
  • Utilities and basic bills
  • Groceries
  • Transportation costs
  • Healthcare
  • Insurance

30% for Wants

  • Entertainment and dining out
  • Shopping for non-essential items
  • Streaming services
  • Gym memberships
  • Hobbies and recreation

20% for Savings/Financial Goals

  • Emergency fund contributions
  • Retirement savings
  • Debt repayment
  • Investment accounts
  • Long-term financial goals

Start by monitoring your spending patterns to understand your current allocation across these categories.

Use budgeting apps or spreadsheets to maintain consistency.

Set up automatic transfers for the 20% savings portion as soon as you receive your paycheck to ensure consistent saving habits.

Emergency Fund

Build a robust emergency fund containing 3-6 months of living expenses.

This financial buffer provides security and prevents debt accumulation during unexpected circumstances.

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Strategic Debt Management

Debt Elimination Plan

Create a focused strategy to tackle outstanding debts, particularly those with high interest rates.

Retirement Account Optimization

Review and potentially increase contributions to CPF/SRS.

Check out our guides:

CPF Special Account closed at age 55 now – How does this affect Singapore Investors in retirement? Can you invest to replace CPF-SA?

Supplementary Retirement Scheme (SRS): Essential Tips for your 20s and 30s

Supplementary Retirement Scheme Guide – Should you top up your SRS account? What investments to buy?

Why you should top up $1 into your SRS account (even if you don’t plan on using it)

Protection Measures

Insurance Coverage Review

A financial reset is a good time to evaluate all insurance policies.

Make sure to ensure adequate coverage while looking for opportunities to reduce premiums without sacrificing necessary protection.

Speak to a few insurance agents to compare your options.

Knowledge Expansion

Financial Education

Continue the momentum of a financial reset by investing in yourself.

Invest time in improving your financial literacy. This knowledge will help you make better-informed decisions about your money.

Check out Fhpremium for premium investing content, including 2025 market outlooks and stock watch!

Concluding Remarks

By reviewing your net worth, debt situation and investment accounts through a financial reset, you gain a clear picture of your financial health and can make informed decisions to improve it.

Ultimately, a financial reset creates a foundation for better cash flow management, increased savings, and long-term wealth accumulation.

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