It’s a new year and a good time to take control of your finances – follow these five practical steps.
Step 1: Organise
Get to grips with what you have and where it is. File important documents such as your ID book, passport, birth certificates, will, medical fund information and policy and investment documents in clearly marked files. Make copies of everything and have them certified. Also make a list with the contact details ofnyour accountant, attorney, work
manager and financial adviser.
Keep a set of copies and give another to someone you trust, such as your attorney or accountant.
Now is also a good time to check if important documents such as your will are up to date. Your will should be updated with each important change in your life, such as a wedding, the death of a family member, births and divorce. To ensure your testamentary wishes are properly executed and your estate is administered effectively, seek the advice of a trust company or attorney specialising in wills and estates.
Step 2: Budget
Draw up a basic budget. List all your sources of income, financial obligations and debts and work out how much you can spend each month accordingly. Necessary expenses such as rent, school fees and debts must be covered before you splash out on luxuries such as tablets and smartphones.
Step 3: Tackle your debt
Debt is a huge problem for many people. It’s wise to first pay off short-term debts that attract the highest interest rate, such as credit and store cards. You can then use the extra money at your disposal to pay off other debts. The National Credit Regulator (ncr.org.za) and National Debt Mediation Association (www. ndma.org.za) have information on managing your debts and legal voluntary debt-restructuring options. They also have advice on where you can go for help. If you’re considering consolidating your debts – in other words, taking out a single loan to pay off your other debts in one go – make sure the interest rate for the loan is lower than that of your other debts, and that the period isn’t so long you end up paying more in interest.
Step 4: Save
Look at your most important investments, for example retirement your children’s education and an emergency fund. Your investments must beat inflation so your buying power grows by more than the inflation rate. A rule of thumb is to annually save at least 15 per cent of your income for retirement. Ask a financial adviser if the amount you currently save for retirement is sufficient. Once you’ve paid your debts and necessary expenses, including investments, you can set aside money for short-term goals such as an overseas holiday.
Step 5: Insurance
Check your long- and short-term insurance. Disability cover makes provision for expenses if you’re compelled to stop working either permanently or temporarily because of illness or injury. If you’re a full-time employee your employer may provide you with group, life and disability cover. If not, or if the cover is limited, you should make provision for this yourself. Life cover is especially important to make financial provision for your dependants in the event of your death. Compare the product information of policies offered by various advisers so you can make an informed decision. Also compare the administration costs and advisers’ fees. Your short-term insurance must be regularly amended to reflect any changes to your house and its contents. Installing good security measures can reduce your monthly premium. The value of your vehicle must be adjusted at least once a year according to the book value, which is lower than when you bought the car. This can substantially reduce your premium. Remember, the onus is on you to request the adjustment. Call various insurance companies to see if they can offer you a lower premium but always compare each company’s comprehensive cover, requirements and exclusions. If you have medical cover with a medical fund, check if the benefit plan still makes adequate provision for your family’s needs. This depends on your health and income. Some funds give members an opportunity to change their options during the course of the year.
- Letitia Watson