Taking positive steps to get your finances on track in 2019 is a great way to start the year. It has been a challenging economic climate but managing expenses that are within your control and drawing a budget to monitor expenses will greatly assist in reducing financial stress levels. This will help improve your health, prepare you to meet your financial commitments and deal with any emergencies that come your way.
Megan Harrison, Executive Head of Transactional Banking at Multiply, says most South African households are in bad financial shape due to lack of adequate financial management and planning. “The Momentum/Unisa Household Financial Wellness Index indicated that 73.5% of South African household were financially unwell in 2017.”
While the problem is not necessarily indebtedness, many South Africans pay high interest on their debt. In fact, the debt-to-income ratios of consumers in good standing and those who are in arrears are roughly the same. However, their monthly instalments differ markedly, as people in arrears on their debt have high interest rates.
But all is not lost. Having a positive frame of mind and focusing on what you can control is a good starting point to turn things around and improve your financial wellness further. To help you achieve your financial goals for 2019, the following activities have proven to be valuable to consumers over the years.
1. Start saving
Grab opportunities to save money by making use of loyalty and reward programmes. Harrison cannot stress enough how important it is to save for retirement, big purchases and to set aside money for unexpected emergencies, as most South Africans are unable to afford an emergency fund of R10 000.
“The instant gratification urge amongst South Africans means they often don’t realise how important it is to put money aside. This may be because they do not think they can afford to save, or are excited to spend their income on buying cars, electronic gadgets or clothing. Or, they may think retirement is something in the distant future and put it on the back-burner.”
“One of the most effective steps towards financial independence is to reduce your debt commitments.”
She says evidence shows that it is critical for people of all ages to save money and take advantage of the compounding effect of starting early, where they can earn interest on both their original savings and ongoing interest being earned. “The evidence shows that it is important to put money into a retirement/pension fund with good growth prospects so that you can retire with a decent standard of living and not rely on others to make a living”.
2. Reduce your debt
One of the most effective steps towards financial independence is to reduce your debt commitments. If you are overstretched with monthly debt repayments, target your most expensive unsecured debts. Also remember that you can save thousands by paying more than the minimum expected amount on something like a home or car loan each month. And then there are those ever-so-easy to use credit cards. Don’t be tempted to order new cards or increase your credit card limits!
3. Track your spending
Tracking your spending habits will give you a clear picture of how much you spend every month. Unfortunately, many people tend to adopt a head-in-the-sand approach to spending. They spend and spend after getting their salaries and then, lo and behold, their money doesn’t carry them through to the end of the month.
By keeping track of how much you spend on debt, groceries, clothing, schooling, insurance, eating out and numerous other expenses, you can determine where you are overspending. Perhaps you are eating out too many times in a month, or buying too many high-end luxuries. The solution for this could be packing lunch for work instead of buying daily, using coupons or buying groceries in bulk.
If you don’t want to keep track of your expenses on a spreadsheet, check the internet for some alternative methods or download an app to do it. Once again, do your research and make sure the app is reliable.
4. Educate yourself
One of the best ways to stay on top of your finances is to educate yourself. There are so many ways people can keep themselves informed about their finances and new trends in the industry.
An important first step is to check bank admin and interest rates to make sure you are getting the best deal possible. This can be done via a simple online check. The media conducts informative comparisons of the banks, giving a snapshot of everything from interest rates and admin fees, to product offerings and the type of service you can expect.
If you are interested in investing money, it’s important to understand the industry terminology and find out how the various listed entities are doing. This means tracking them over a period of time. If you don’t feel confident about making the call yourself, many financial institutions and advisers offer assistance.
If you feel you need help with your finances, visit the Financial Planning Institute of South Africa website to find and engage the services of a certified financial planner.
“Ultimately, if you don’t know where you are going any road can take you there. It is therefore very important to set out your financial goals and take the necessary steps with the right advice to help you on your journey to success,” concludes Harrison.