Your financial fitness plan for 2015

2015-01-12 07:00

If you have a financial hangover from all the spending you did over the festive season, this is a great time to take a hard look at your money habits and revise them. Tumi Mothoagae, financial adviser at Liberty, says: ‘Just as you plan to renew your energy and your body with an ­extensive fitness plan, there are steps you can take to ensure that 2015 is a financially fit year for you.’ Neesa Moodley breaks it down.


Budget and plan

To deal with the month of Januworry, you need to be conscious of every cent you spend. Draw up a monthly budget that lists your income and expenses, and use it to ensure you do not spend more than you earn.

Avoid tempting sales signs and try to buy only what you need. Tumi Mothoagae, financial adviser at Liberty, says: “In particular, you should avoid buying on credit. A better option during this month is to draw funds from your emergency savings to tide you over until the next payday at the end of January. However, if you choose this route, make sure you replenish the money in your emergency savings as soon as possible.”

Think about the year ahead and start planning now for any major expenses – such as a wedding. For example, if you set aside a little money each month, you are less likely to spend money you don’t have. You may also have to pay travel and accommodation costs if the wedding is out of town.

Most parents have to think about paying school fees in January. If you pay school fees upfront, you may qualify for a discount of 5% to 7%. However,

if you have short-term debt, such as credit cards and personal loans, it is better to pay these

off. You will save more than 20% on interest repayments.


Maximise your tax return

The month of love is also the month when you should be thinking about your tax rebate. Mothoagae says this is a good time to start getting all your financial documents in order.

“If you have extra funds on hand, you could make a deposit into a tax-friendly retirement annuity [RA],” she says.

Remember that if you choose to invest directly in an RA, you will not pay capital gains tax, tax on dividends or tax on returns – all returns are tax-free. You are also allowed to deduct about 15% of your taxable income in an RA. For example, if you earn R100 and save R15 in an RA, you only get taxed on the remaining R75.

If you use your car for business travel, don’t forget to make a note of your car mileage at the end of February. You will also need to start a new logbook for the 2016 tax year. It may be a good idea to hire a financial adviser or tax consultant to ensure that your tax return is filled out correctly.


Review your short-term insurance

Carry out a review of the insurance products you have, and assess whether these products still meet your needs. You want to ensure that you are not over- or underinsured. Compare quotes from different insurers, but be clear about what cover each insurer offers for the premiums quoted to you. For example, insurer A might offer you cheaper premiums than insurer B, but with higher excess.

If you choose to go this route, you should save the additional funds so that you are able to pay the higher excess in cash if you make a claim during the year.

If you have purchased a car using a hire purchase agreement, you might want to consider checking if you have credit shortfall cover. This is insurance that covers the difference between the amount your car is actually insured for and the amount of money you owe the bank, including any interest.


Revisit the budget

Revisit the budget you drew up in January and update it, taking into account any new expenses you may have. You might have paid off a clothing account, which means you can now channel those funds towards paying off other debt. Use money management apps to monitor expenditure and track your savings goals.


Cool down your costs

As the country cools down in winter, electricity costs often increase. Reduce costs by auditing your energy use. For example, installing a solar geyser can save you R17?606 over a three-year period, assuming an average monthly electricity bill of R1?000. Even simple steps such as taking shorter showers or making sure lights are switched off in empty rooms can save up to 10% of your monthly electricity bill.

Also, review your long-term insurance. Notify your insurer of any changes that might affect your risk rating.

“You should also ask your financial planner to go over your estate plan – your will, beneficiaries, executors and so on,” says Mothoagae.


Review your medical needs

You looked at your medical aid benefits in January. Now take a second look so that you know what funds you still have available for the rest of the year.

If you have a self-payment gap, ask your medical scheme how much money you have to spend out of pocket before your scheme starts covering your medical costs again.


Spotlight on savings

Savings month! If you haven’t started saving, now is the time to make a move. Start with a small amount and slowly build up your savings over time.

When you are choosing a savings product, you need to examine the fees you pay as these can eat into the returns you make. If you have existing products, check the fees are still in line with the agreement you initially signed.

Mothoagae says other factors you need to take into account include the investment period, how accessible you need the money to be and the minimum contributions required.


Girl power

At least 51% of women in South Africa consider themselves single, and are financially responsible for themselves and their children. If you are married, both partners should be fully aware of the financial matters in the household.

The importance of being financially responsible is doubly important for a single mother who is not only a sole breadwinner but must also ensure she has proper financial planning to ensure that her children are provided for if she dies.


Spring-cleaning time

Traditionally a time to spring-clean your home, September can also be the ideal month to spring-clean your finances. This is not as onerous as it sounds. Take the time to sort out your financial statements. Check your bank statements, medical aid statements and annual benefit statements.

If you are considering changing your child’s school in the following year, now is the time to give your school notice so that you don’t have to forfeit a term’s fees.


Medical scheme choices

Medical schemes will now start releasing their contribution increases for the year ahead. Mothoagae cautions that you should remember that the advertised increase is usually an average across all the different benefit options the scheme offers.

Find out what the contribution increase is for the benefit you are currently on. You may choose to either change the option you are on or even change to a different medical scheme in the new year. Compare your medical needs with the benefits you receive on each option and the premium you would have to pay for those benefits.


Plan for your bonus

If you are lucky enough to receive a bonus from your employer, now is the time to think about how you are going to manage the funds you receive. Once the money is in your account, it is all too easy to simply spend it. Think of ways to use the money so that it works for you. For example, a lump sum payment into your home loan can reduce the term of your loan and the interest you pay in the long term.


Exercise discipline

Regardless of whether your money personality is that of a cautious saver or a reckless spender, the festive season somehow makes most people spend more money than they would at any other time of the year. In addition to your usual monthly budget, draw up a festive season budget and stick to it. Discuss the festive season budget openly with your children.

This will pre-empt any unreasonable requests and make them more aware of the need to manage their money effectively. Remember that your January salary is a long way off and your funds need to last longer than the usual four weeks.

“If you are in a position to do so, it is a good idea to pay some of your January instalments or premiums in December. This will give you some relief at the end of January,” says Mothoagae.

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