How to start budgeting and saving for your children’s future
By Fadia Arnold
If you are like me and have had to start thinking about the future of your children and how you are going to pay for school, textbooks, tuition, aftercare, extracurricular activities and the big one – university or college, then you too might be struggling with having to choose the correct savings and investment products on the South African market.
Almost daily I am bombarded with emails, text messages and LinkedIn messages from various financial institutions and numerous financial advisors or wealth management consultants wanting to meet and discuss my options.
The sheer volume of choices in this regard can become quite overwhelming if finance is not your expertise or you simply just do not make enough money to put monthly savings aside. These are realities, where many South Africans live pay cheque to pay cheque and find it difficult to save for the future needs of their children. Furthermore, single parents or single income households have the added responsibility of managing their household’s budget and financial future without a second income. So, what are our options?
Creating a monthly budget
An integral aspect of managing your income on a monthly basis, with the intention of putting a little something aside monthly for your children’s future, is knowing what your foundation looks like. The way this can be achieved is by creating a financial budget for your household.
Once you have a budget drawn up, and I mean literally drawn up on a large piece of cardboard or paper, as one would formulate their life vision and goal boards - you’ll have a literal and visual view of how much money you have that can be put aside towards your savings. Seeing this visually, will really assist you in pointing out where you can cut down, spend less, eat at home more than you do at restaurants, pay off the smaller debts like clothing accounts and ultimately save more. If you can visually see that you spend X amount on fast food and restaurants per month, you might cringe and just realize how much in fact you could be saving by halving the restaurant outings per month. According to Investment Banker and Wealth Management Consultant, Nazeem Samodien, “allocating money to savings and investments should ideally be around 20% per month minimum and utilizing a monthly budget whilst vehemently tracking your spending should achieve the goal of saving consistently”.
Goal-based investing calculators
Yes, I too have never heard of a goal-based investment calculator. According to Mr. Samodien, in the upper echelon of financial management there are wealth management investment strategies called goal-based investing whereby you can choose a goal - such as your children’s primary, secondary and tertiary education and then calculate the amount regarding what you are required to save and invest on a monthly basis in order to achieve that particular goal. There are a number of free goal-based investing calculators and mobile applications that can assist you in establishing how much you will need to invest each month to reach your savings or investment goals. Navigating the various options can become challenging if financial planning is not your strong point and therefore working with a financial or investment advisor or a money management consultant or advisor is worth the investment in the initial phases of your monthly budgeting until you get the hang of managing your money yourself.
It is also important to teach your children about financial literacy. I certainly was not taught any financial planning growing up or in school and have absolutely faltered as a result on occasion. Get your children involved in saving and investing from an early age so that they can understand the value of money and how long-term value investing can ensure a prosperous future for them, and their children.
Fadia Arnold is an Attorney at Arnold Law Legal Consultancy