Get your finances in order

2013-04-21 10:00

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There is always pressure on the pocket, so the time to budget and prioritise is always now

Thembinkosi earns a good salary and does not splash out or spend money on luxuries, yet he has found himself in financial difficulty and struggling to find money to save.

He wrote to City Press because he wants to make the right financial decisions by taking action and putting a plan in place to achieve his goals.

He writes: “It’s ironic, especially because I am not a materialistic person.

“The most expensive clothing item I have ever bought was for R1?500, otherwise I just buy chino trousers at R250.”

He finds himself spending at least R4?900 of his salary in re-paying old debts, and so he’s unable to afford a home.

Thembinkosi’s debt started when he took out a personal loan just after his graduation – a trap many young people fall into.

That first pay cheque suddenly opens one to the world of credit. One realises, too late, that those credit lines prevent one from building real wealth in later years.

Thembinkosi’s next big debt came as a result of a storm that destroyed his family home.

As the main breadwinner, his family looked to him for help and he took out a loan to repair the house.

This was quickly followed by his father becoming seriously ill.

Diagnosed with cancer, Thembinkosi’s father required expensive medical treatment.

“At that time, I was earning less than R8?000 per month as a senior tutor,” he says.

“As much as I regret all of this now, I just wonder as to how I would have managed without these loans.”

Currently, his main financial commitment is supporting his three children and five extended family members.

“I am not saving, although I try. But it is difficult.

“I would like to save an amount each month in an investment as well as take out life cover and an education policy for my kids.”

Thembinkosi also has longer-term goals of buying a truck and investing in logistics.

“My weakness is that I am credit active and I have been listed as a defaulter, which happened last year, so I cannot buy a house or car.”

One of Old Mutual’s financial advisers met with Thembinkosi to assist him in compiling a comprehensive financial plan.

Lee Nakan, an executive general manager at Old Mutual’s agency franchise division and broker distribution, says Thembinkosi’s first strategy must be to pay off his debt.

He points out that, in some ways, Thembinkosi’s poor credit record is actually positive as it prevents him from taking on any further debt and forces him to address his current situation.

Nakan says: “While saving for his future is important, as long as Thembinkosi has debt, settling this debt should be a first priority.”

He adds that regular savings will become easier to make once expensive debt repayments have ended.

According to Nakan, a prudent and affordable restructuring of Thembinkosi’s debt would ensure he is able to make regular contracted repayments.

“South Africa’s national credit systems measure credit worthiness based on history and affordability.

“Restoring his credit rating by regular consistent payments is the road to follow here.”

The only way to find the money to tackle debt is to have a proper budget in place.

Thembinkosi admits: “I have never written a proper budget. Some months I do write it down, but, in most instances, I am very inconsistent in following my budget.”

Nakan says a thorough analysis of Thembinkosi’s budget and, in particular, his expenses, should examine ways in which his income can stretch to cover as wide a variety of needs as possible.

It will also help Thembinkosi to be more disciplined in how he assists those who depend on him.

“My overspending is mostly because I feel sorry for my extended family members and those people whose parents passed away.

“They come once or twice a month on different occasions and I feel I must help them,” says Thembinkosi.

By having a proper budget in place, Thembinkosi can include an amount to assist his family, but this must be defined and have a limit.

He would be of no use to his family if he became financially unstable by overcommitting financially.

Financial stress can affect his ability to do his job and lower his productivity.

While it would not necessarily result in him losing his job, it could affect future promotions.

The best way to help your family in the long term is to be financially secure.

Setting limits and being clear about how much he can afford to provide, Thembinkosi’s family will know how much they can expect from him, and also why he is not in a position to offer more.

As the sole breadwinner in his extended family, Thembinkosi also needs to protect his most important asset – his ability to earn an income.

According to Nakan, Thembinkosi needs a protection plan, which ensures that, in the event of his death, disability or contraction of a severe illness, financial provision would be available for him and his family.

“We will investigate what he has in place currently (through his employer) and make recommendations for ensuring that he has peace of mind in this area,” says Nakan.

Thembinkosi also needs to write up a will to ensure his estate is paid out timeously, and to avoid conflict.

If he is a member of his company’s pension fund, he needs to update the beneficiary-nomination form listing everyone who is dependent on him financially, as the trustees of the pension fund would have to consider all dependants when paying out the proceeds of a retirement fund.

He also needs to name the beneficiaries on any life policy he has with his company or privately. Life cover provides immediate funds to support the family while the estate

is settled.

Thembinkosi says: “The meeting with Old Mutual was eye opening, and the template for a monthly budget is of great help.

“I am more motivated than ever to cut unnecessary costs and invest wisely.”

»?A detailed monthly income and expenses budget template can be found at www.oldmutual.co.za

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