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Checklist to secure your finances and lower your stress

Published Mar 7, 2022

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NICOLETTE’S NICKELS

By Nicolette Mashile

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The dreaded first month of the year, Janu-worry, has come and gone, and many made it through by hanging on to the thinnest thread. In February, we still had to live through the after-effects of our financial decisions and play catch-up to rectify the state of our wallets. During this time, we may have taken out additional credit, withdrawn from our savings accounts, put some business plans on hold, or borrowed money from friends in order to get by. But as we come to March, we have the opportunity now to start from scratch, redefine our goals, and readjust our budgets. Here are a few financial tips that you can put into practice in order to fix your finances and live a less stressful life.

Take a look at your debt

This may be store accounts, personal loans, credit cards, or money borrowed from friends. List everything that you need to pay back, making the high-interest debt your top priority. If you are terrible at remembering what should be paid, go to your banking app and create a debit order for each account. Or look at a money management app that can help track your spending, such as 22seven.

If you do not have the discipline to manage your debt, here’s a great strategy. Create a debt repayment stokvel account or group with your friends. Each person can contribute an equal amount - for example, R1 500. The accumulation of everyone’s financial contributions will be effective in helping each person reduce high-interest debt. This is because you will be keeping each other accountable. Be honest and open with your friends. Having this conversation will assist everyone in understanding the purpose of the stokvel and you will find that you are not alone.

A warning: do not take out more credit during this time. Do not borrow more money from friends. The purpose of the stokvel is to help you start on a clean slate.

Start investing!

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Yes, funds are limited at the moment, but you can start by saving just 1% of your income. You won’t even notice the difference. Put that 1% aside and increase it gradually as you feel you are becoming more financially secure over the months. The question is where can you invest this money?

1. Your pension fund. If you are already contributing into your pension fund, you can arrange to increase your contribution in the form of voluntary contributions. Contributions up to 27.5% of your salary are fully tax deductible.

2. Unit Trusts and exchange-traded funds (EFTs). With a unit trust, you are investing in shares and bonds from a pool of money divided into equal portions called units. With an EFT, you are investing into a basket of securities. Unit trusts and EFTS give you exposure to various assets and markets, which reduces risk due to your diversification.

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2. Property. This is one of the most lucrative forms of investment. However, if you cannot afford to invest in brick and mortar property, then try property EFTs. They track an index comprised of exchange-tradable Real Estate Investment Trusts (REITs). They provide diversification and liquid, low-cost exposure to real estate.

3. Tax-free savings accounts. The financial year has officially started, which means you can again invest in your tax free savings or investment account (up to R36 000 in a tax year). You could make use of a financial assistant app such as the Franc app, which has two funds: a money market account and a top-40 equity fund.

Have an emergency fund

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Speaking of crises, next on the checklist is to start building an emergency fund. This is your safety net in case you experience any life-changing events that may affect your monthly income. Your emergency fund should be able to cover your expenses for up to 6 months, if you manage it properly. Even six months may not be enough. Just look at the pandemic and how, at the start of it, no one knew how long they would need to depend on their emergency funds for, and some people depleted their funds before they were financially stable again. This type of investment is necessary for everyone, as life is unpredictable, but more so for contract workers and entrepreneurs.

Check up on your insurance policies

Just because you took out an insurance policy five years ago and you are diligently paying your premium every month, it does not mean that it is still relevant. As your life evolves, so should your insurance. A lot may change in five years: you may have acquired a new asset, developed a medical condition, or changed jobs and now work in a more high-risk environment. Your insurer needs to know of such changes so that when you make a claim, it is reflected in your policy.

Don’t procrastinate

The ideal time to fix your personal finances was a while back, but the next best time is NOW. With crises hitting us like the invasion of Ukraine by Russia, coming out of a global pandemic and a struggling South African economy, households will be forced to tighten their belts and make even more frugal financial decisions and explore more money making and investment opportunities.

Remember good money management is not just about creating a budget and managing your current income and expenses; it is also about laying out the foundation for the rest of your life, so that you can be financially secure up until you are grey and old.

PERSONAL FINANCE

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