10 WAYS TO FIX YOUR FINANCES IN FICKLE TIMES
It’s that time of the year when your spending is about to increase. Holidays, gifts and a new year – which brings increases in your big ticket items – are a couple of months away. Make sure you are prepared and enter the holiday season and new year with a
Spring is here and with it comes much more entertainment, outings, holiday plans and gift purchases for Christmas.
But before you rush out to wine, dine and book tickets and accommodation, remember that most people spend more money between November and February than they do in other months.
Spending on Christmas, an annual holiday and higher-than-inflation January increases in education, medical and other fixed costs leave many people starting the new year cash-strapped. It can take months to recover, only to be faced with the same problems the following year.
Now is the time to spring-clean your finances and do something to ensure the cycle is not repeated.
1 KNOW WHAT YOU SPEND
Analysing your expenses may turn up some nasty surprises, particularly in technology and transport costs. You don’t cover these expenses in a single payment and have probably lost track of the total cost.
If you add up separate spending on cellphones, data, ADSL and DStv you may be shocked at the total monthly expense.
Similarly, if you add up car repayments, services, fuel, insurance, f lights and ordering the odd Uber, you may find that transport costs are way higher than you think.
The biggest spring- clean you can do is to get a handle on your budget and expenses, says Ian Beere, managing director of financial planning company Netto Invest. Get your bank statements for the last three months and look carefully at where you have spent money, where you have wasted money and where you can change your spending habits. If you are paying for something you hardly use, give it up; if you can consolidate some payments, make the change.
2 MAKE A SEASONAL BUDGET
Work out a seasonal budget from November to the end of January – including festive season spending on gifts, entertainment and holidays – and school uniforms and books. Work out what your new financial commitments will be in the new year, including increases in education, medical costs and insurance premiums.
Christelle Louw, advice partner at Citadel Investment Services, says planning is key. Draw up a list of expenses that are out of the ordinary – not your normal household expenses, she says. These include registration fees for school, new uniforms, Christmas d i nners, gifts and holiday expenses, she says. The list should also include items such as stationery, staff bonuses and insurance increases. Prioritise what is important. Certain things can be changed, while others are not negotiable. Spending on textbooks, for example, is probably not something you can change but Christmas dinners or holidays can be planned on a stricter budget. Think carefully before making a resolution to get fit and taking out a gym contract you will hardly use. You may find you are paying an annual premium for insurance cover and can change it to a monthly premium or move it to another month where your financial stress is less. These are things you can plan now to make January easier on your pocket.
Louw says there are also things some people can do to earn more money over these months because the businesses they work for are busier at this time of year. “A lot of people have the opportunity to earn more if they work more or have longer hours, or if they are commission-based – this is the season to do it.”
Louw s ay s most people, however, have limited capacity for spending and it is important to be prepared and to cut down where possible. You have to go into the season knowing it might be tighter than the year before and listing the big ticket items that will hit you will enable you to make decisions now.
Because many people get paid early in December and spend more than usual over Christmas, January is the longest month financially and they are then back in the cycle of taking out loans or spending the year on the back foot, according to Gary Kayle, coach at The Money School.
As t he weather i mproves, people start going out and you need to make deliberate decisions about how much money you are going to spend so you don’t have a sinking feeling when you see your credit card balance, he says.
3 CHECK YOUR INSURANCE
Have a look at insurance policies and how much cover you have. “Maybe things have changed and you need more or less. Events can trigger the need to change. For example, you may have accessed your bond so you have more debt, or you got a promotion, have a bigger education commitment, or you could have inherited money, which could decrease your cover,” says Beere. Ask yourself if the cover is still appropriate in your current circumstances.
Check your life insurance and make sure you aren’t over- or under-insured. Beere says you may not have looked at it for years and it may no longer be suitable and may require changes.
4 PUT YOUR SAVINGS IN THE RIGHT PLACE
Check how much you are saving and whether you can afford to make t he purchases you are planning. Once you have done that, check that your savings are being put to work to make more money.
Beere says it is important to decide if your savings are going to the right place right now and, if not, you may want to increase certain areas of investments and reduce others. Whatever t he circumstance, diversity is key.
Many people assume their pension fund is fully invested i n shares, so t hey stay away from equity investments, but it is important to look at where your pension is actually invested and include it in your overall diversification plan. Beere says pension funds invest in shares, bonds, property and cash in South Africa and overseas, so you need to tally that up with your own savings and see where you stand. If you have money in unit trusts you may assume it is all invested in the stock market, but there are cash and share unit trusts.
But don’t overdo it. While diversi f i ed i nvestments ar e important, you can also spread your risk to the extent that your investments are so fragmented and numerous that you find it difficult to control.
Beere says that at the moment, i nvestors should be l eaning towards overseas shares rather than local shares – as much as 50% of your shares should be in overseas shares. If you are young and trying to build your wealth, you may want to have a large portion of your savings in shares. But if you are older you may want to play it safe and have more cash in your portfolio, says Beere.
Also make sure you are using tax-efficient investments where appropriate.
CHECK YOUR WASTE
Each person has different spending priorities, so there are no rules on what you should or shouldn’t spend your money on. But make sure your spending is in line with your priorities and that you are not overspending on something just because your priorities i nclude something luxurious you can’t really afford.
You may love having a nice car, but cars are a big expense. Beere says you should consider buying a one-year-old vehicle. Ask the dealer what the car’s worth is every January and understand you are spending 30% of that on insurance, depreciation and other costs.
7 DO SOMETHING ABOUT THE BIG TICKET ITEMS
At the end of the year you are entitled to look at your medical aid plan and change it. Look at the pricing for next year and give it some thought, Beere says. If one family member is sickly you could put that member on their own plan and others on minimum cover.
If you use a lot of your medical aid, you can look at taking out gap cover to cover the difference between what the medical aid pays and what it actually costs.
Unless you have been cleverly preparing for education costs since the day your children were born, there is not much you can do about education costs other than to decide if you can afford the best private school or the most prestigious university and make the tough decisions accordingly.
The costs of technology have crept up on us over the years. Sit down and have a technology review of your DStv, internet connections and cel lphone contracts and look for ways to consolidate your spending. There has been a change in how people use cellphones, Beere says, and it is worth looking at the costing of prepaid, contracts, data and calls. You may decide it is worth it to buy a phone for cash and only change the phone when it becomes useless. Free phones on contract are not really free. You may not be watching DStv much and find it is cheaper to download what you want to watch.
Check t hat your policies are appropriate right now and check the value of the items insured and whether your car has been insured at the current value.
8 MAKE SURE YOU DON’T LEAVE A FINANCIAL MESS
Read your will and if you are not sure it is still valid, get a financial planner to look at it. Make sure beneficiaries – of your will and life insurance – are all appointed and documented. If you have a financial planner, these will be on file, but if not, make sure you have a summary of what you own and who the beneficiaries are.
Make a secure f ile of all of your financial assets and include copies of recent statements of your bank, pension fund, short-term insurance, share accounts, unit trusts, vehicle documents and bond information.
TALK ABOUT MONEY
Many couples only talk about money when it is running out, says Kayle. Now is a good time to look at the year ahead and help one another make good decisions. It is also important to know what you have collectively; otherwise one person may be spending while thinking the other has saved.
Talk to a f inancial advisor so that you can turn your springclean into a long-term plan.
IS JUST A SEASON
Once you have done the springclean, you should be in a good position to know exactly where you stand f inancially. This puts you in a perfect position to take the information you have and work out your longer-term f inancial requirements and goals. Get rid of paperwork and make sure your statements are being emailed or that you have online access, so they are easy to track and file and are easy to submit for tax.
Create a financial calendar so that you know which big expenses – or bonuses – are coming and when. And before you get full of Christmas cheer, take stock and know exactly what position you are in without assuming things will change, or that next year will be better.
Ian Beere Managing director of Netto Invest