Be financially fit this year

2017-01-12 06:01
PHOTO: supplied Draw up a monthly budget.

PHOTO: supplied Draw up a monthly budget.

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ONE of the most common new year’s resolutions when it comes to our money, is to simply work better with it. Be it to save more, budget better or buy less, we have the best intentions to secure a better financial future for ourselves. But, without a proper plan, the best intentions will remain just that. Follow our steps to be financially fit in 2017 and tick your money new year’s resolution off your list.

• Draw up a monthly budget. Saving up for a big goal like a deposit for a new home or simply committing to paying off all your short-term debts means a bit of planning and dedication.

Onalenna Disipi, a financial adviser with Discovery, says that drawing up a monthly budget will help you make provision for all your expenses and will allow you to find ways to start saving. Understanding your expenses means you can set realistic goals to reduce them and tackle any debt.

“If you don’t know what you are spending your money on, try keeping a spending journal for a month or two. It can be as easy as keeping a notebook with you where you jot down every cent spent - including the daily cappuccino, occasional magazine or impromptu dinner. Doing this exercise will help you spot spending patterns and where you can potentially cut back. While R20 for your daily cappuccino does not seem like a lot, adding it up over a month comes to around R600, or R7 200 a year,” Disipi says.

Keeping track of the small expenses can often result in significant savings.

• Ditch debt. If you reduce your debt, you are less likely to be impacted by interest rates increases. So the first strategy to becoming financially fit is to ditch your debt. Make it a principle to borrow less than you can afford. Start by sticking to your budget and not resorting to credit when you want something. Understanding the pitfalls of instant gratification is an important step in getting the right attitude and mindset towards money.

• Trim expenses. Perhaps the most fundamental of financial planning principles is to tailor your lifestyle under your earning power, and as you earn more, don’t just borrow more.

“It’s important to be careful and cautious when borrowing money,” says Disipi. Overextending yourself can lead to significant problems if interest rates rise. Always leave a bit of a cushion in your budget to absorb the impact of any unforeseen expenses.

A useful tip is to always have a bit of money left over in your account at the end of the month and to keep on building on that every month. It forms a good habit of not spending every cent you have and establishes a “planning-for-a-rainy-day” mindset.

• Pay off the most expensive debt first. Human nature highly favours instant gratification – paying off the least expensive debt not only frees up funds, but “small victories” also make you feel you are one step closer to achieving your goal – a great motivation to continue with the plan.

Credit card debt, referred to as short-term debt, usually has the highest interest rates, which means it really eats into your income and ability to save. In the same way that compound interest works in your favour when saving, it works against you if you owe money. If you have multiple credit or store cards, you can tackle this debt by working out a plan to pay it off.

• Take advantage of salary increases or bonuses and invest.

Once your finances are on track and you are disciplined about sticking to your budget, you could start investing your salary increase or bonus. It is tempting to splurge any salary increase or bonus. The better solution would be to use your increase or bonus wisely and invest this extra cash – especially if you already have a budget you can stick to. While this might be difficult to stick to for most people, a good way to start is to invest at least half of your increase or bonus, and use the rest to treat yourself. This helps you stay balanced and motivated to reach your financial goals.

• See a financial adviser to draw up a retirement plan.

Savings statistics show that South Africans are some of the worst savers in the world, especially when it comes to retirement savings. And most underestimate how much they will need to retire comfortably. The services of a financial adviser can be invaluable in helping you understand how you can save for retirement.

“The key to ensuring longer-term financial stability is to set realistic savings goals for retirement the moment you start working. This is important as the biggest asset you have is time – the positive effects of compound interest help grow money further, but you need to allow as much time as possible to achieve this.

“Read about financial products and advice on planning for retirement, and then schedule an appointment with a financial adviser who can help you draw up an achievable retirement plan,” says Disipi.

Also, as tempting as it may be to splurge your pension or provident fund upon resignation, remember there are tax implications when the money is in your hands; the best alternative is to preserve those funds until retirement. That’s almost killing three birds with one stone - not only are you saving tax it also gives you an opportunity to build a greater asset for retirement by earning compound interest on your funds and saves you the frustration of contributing more towards a retirement plan to make up for the funds withdrawn.

• Check that you have enough life insurance to protect you and your family. Depending on your life stage, you may not be thinking about life insurance. The truth is that life insurance is not only important for parents with children or when you buy your first property, as accidents or illness can happen at any age.

Even if you are single without any direct dependants, your death could create a financial burden for those close to you. You might not have a lot of debt, but having the right amount of life cover means your loved ones won’t be responsible for paying your financial obligations if you died unexpectedly. Also remember that being young, independent and healthy doesn’t mean you will never become disabled or severely ill. Disability and severe illness cover pay out a lump sum if you get an illness such as cancer or injure yourself permanently and can no longer work.

You also might want to think about protecting your monthly income. Income protection pays out a regular income if you get sick or injured. This can help you maintain your current lifestyle without having to rely financially on family or friends. - Supplied.

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