What’s your financial action plan for 2019?
With the World Bank pitting lower global economic growth, a VAT hike on the horizon, plus a likely doubling of the fuel levy, (if the Road Accident Benefit Scheme is signed into law), it’s not likely to be smooth sailing.
It’s time to batten down the hatches and “project manage” your finances to reduce expenses and increase savings, to set you up for a better financial future.
Think about where you can save money and cut costs. This may mean a critical evaluation of where and how you live - whether you eat out, go on holiday or what car you drive. Think about your choices, preferences and actions.
During turbulent times, it’s more important than ever to keep track of your expenditure. Write down your monthly income and expenses: rent or mortgage bond payments, insurance premiums, medical scheme contributions, school fees, staff salaries, groceries, and any other amount that has to be paid. Factor in increases that come at various times of the year, such as security company licence renewal fees and vehicle licences.
Developing the right financial mindset starts with your approach to money - how you spend and whether you save. Do you budget? Do you bargain shop? Make Lemonade, a personal finance comparison site, observes: “Your mentality drives your spending and saving habits. When you focus more on the bottom line, you will be on your way to save money for the long term.”
Draw up a budget and create an action plan. How will you manage your preferences and choices with the money you have? Refine estimates with actual costs, and modify your action plan to fit your lifestyle and realistic budget, it suggests.
22seven, by Old Mutual, is a free budget planner that helps you to manage your money better. It allows you to create a budget, track your spend, invest at low cost - or tax-free. It’s a great way to stay on top of your expenditure: see how much you’re spending on eating out, at the supermarket, and on those quick-shop jaunts.
Setting goals not only helps you to save money, it also teaches discipline. “Prioritise saving with a concept known as ‘pay yourself first’,” says Vera Nagtegaal, the executive head of insurance website Hippo.com. “This means that before you spend any money, you should put a predetermined percentage of your salary aside - in a savings account or a unit trust - so you can gain the benefits of growth.”
She emphasises the importance of savings as a buffer against unexpected expenses, and you should ideally have three months’ salary saved up in an “emergency fund”, as well as other savings plans for short- (one to two years), medium- (two to five years) and long-term (future and retirement) goals.
“Don’t be deterred if you haven’t managed all those different types of savings - rather start with a small amount, such as a couple of hundred rand each month, and work your way up to bigger balances,” says Nagtegaal.
Reduce your debt
Pay off any outstanding debts as quickly as possible. Popular methods are the avalanche method (debt that attracts the highest interest rate is paid off first) and the snowball method (paying off your smallest debts first).
Don’t skimp on priorities
It’s “Junuworry” and “tweeps” (a person’s followers on Twitter) are making light of reversing debit orders. But it’s no laughing matter if you reverse debit orders for insurance policies and security. Consider the financial knock if your car was stolen - or worse, you crashed into another car - or your house was broken into and your household contents weren’t covered. It’s a setback from which not many can recover. Nagtegaal says it’s important to have insurance policies in place to protect you and the family: household and car, and life, disability and funeral cover.