Cut the waste and reboot your budget for 2020
Trimming the fat off your budget and investing what you save could completely change your financial situation, particularly after the flurry of expenses this holiday season.
Stephan Hartzenberg, head of product development at 10X Investments, gives some pointers
There can be no doubt that the festive season has arrived. For millions of South Africans December is the time to travel, visit relatives and really ‘live it up’. Unfortunately, within the first few weeks of the new year, cheer and goodwill is replaced by a financial holiday hangover, as consumers come to terms with how much they’ve spent (often on credit).
Can you relate? Don’t despair. With a few hours of focus you can reboot your budget for 2020. Here’s a checklist that will help you make a start and get your finances back on track for the rest of the year.
Go through at least three months of bank and credit card statements line-by-line to see which black holes most of your money is disappearing into.
Re-evaluate all your debit orders and other regular payments.
Add up bank fees and charges. Once you see the total cost of making frequent, small withdrawals (often from another bank’s ATM) you might rethink your relationship with cash.
Interrogate the fee structure on your bank account and look at which benefits and add-ons you actually use. Paying R300 a month for a private banker you’ve never seen adds up to R3,600 a year. Is it really worth it?
Look at any insurance cover you have. Many people are paying for life insurance even though they don’t have any dependants.
Have a look at what you are paying in fees for your retirement savings plan. For most people their retirement savings pot is the biggest investment they will make, yet few people know how much of it they are losing in fees. Paying an extra 2% (of your entire savings) in fees, compounded over decades, can reduce your pension payout by up to 40%.
If you have a corporate retirement savings fund through your employer, do some homework and find out what is included. It will probably include some compulsory risk benefits, such as life cover, disability cover, funeral cover and maybe education cover for your children. Make sure you are not paying a fortune to duplicate cover across policies.
Another line on your statements that is worth interrogating is reward schemes. If you are not cutting out the vouchers, counting the points and taking advantage of all the rewards then you are funding someone else’s reward scheme. You should just get rid of them.
Once you have finished trimming costs and cancelling duplicates, add up what you have saved and invest that extra cash. If you put it into a retirement savings policy, you can also claim cash back from Sars.
Then you can sit back and watch your savings grow. Thanks to compound interest, your money will continue to grow, picking up speed with time (see graphic).
Stephan is a director of 10X Index Fund Managers, a regulated manager of collective investment schemes. He is responsible for all of 10X’s financial products.