S­teps to­wards fi­nan­ci­al free­dom

George Herald - Auto Dealer - - Property Guide -

O­w­ning a ho­me is a long-term fi­nan­ci­al com­mit­ment that re­qui­res plan­ning. It is im­pe­ra­ti­ve that ho­me­o­w­ners ha­ve a sy­stem in pla­ce that will help them get through a rai­ny day if ne­ces­sa­ry, says A­dri­an Gos­lett, re­gi­o­nal di­rec­tor and CEO of RE/MAX of Sout­hern A­fri­ca.

"Ir­re­specti­ve of w­het­her so­meo­ne is in an en­try-le­vel job, star­ting out their ca­reer, or an en­tre­pre­neur with a mul­ti-mil­li­on rand com­pa­ny, it is im­por­tant to ha­ve so­lid fi­nan­ci­al prin­ci­ples in pla­ce to be a­ble to get through the tough ti­mes and con­ti­nue to thri­ve, e­ven w­hen the e­co­nomy is not in an i­de­al sta­te," says Gos­lett. "Ma­ny af­flu­ent pe­op­le lost their we­alth be­cau­se they did not un­der­stand fun­da­men­tal fi­nan­ci­al prin­ci­ples. Re­gard­less of e­ar­ning po­ten­ti­al, the sa­me prin­ci­ples can be u­sed and ap­p­lied to en­s­u­re that the per­son has a so­lid foun­da­ti­on they can grow from. As with a ho­me, the foun­da­ti­on is cru­ci­al to the struc­tu­ral in­te­gri­ty. S­kip­ping a step will re­sult in a shaky struc­tu­re that will not stand in chal­len­ging ti­mes."

Ac­cor­ding to Gos­lett, Da­ve Ram­sey's "Se­ven Ba­by S­teps" is an ex­cel­lent gui­de­li­ne and star­ting point. "A­part from being an ac­com­plis­hed aut­hor and talk s­how host, Da­ve Ram­sey is a per­so­nal fi­nan­ce ex­pert who has de­ve­lo­ped a met­hod to as­sist pe­op­le to get out of debt and fi­nan­ci­al stress and in­to a li­fe of sa­ving and gi­ving. As a success­ful re­al e­sta­te pro­fes­si­o­nal who lost e­ver­y­thing and had to start a­gain, he has first-hand kno­w­led­ge on how to re­ach fi­nan­ci­al free­dom from a dif­fi­cult si­tu­a­ti­on," says Gos­lett.

He­re is a gui­de­li­ne to the se­ven fi­nan­ci­al s­teps laid out in the pro­gram­me:

C­re­a­te a star­ter con­tin­gen­cy fund

U­nex­pected li­fe e­vents hap­pen and of­ten cost mo­ney, es­pe­ci­al­ly if it has to do with the ho­me. Whi­le in­su­ran­ce will co­ver a lar­ge num­ber of pos­si­ble e­vents, it won't co­ver e­ver­y­thing, so ho­me­o­w­ners need to be fi­nan­ci­al­ly pre­pa­red. An e­mer­gen­cy fund will en­s­u­re that you don't ha­ve to go in­to mo­re debt to fix the pro­blem. Aim for sa­ving of a­round R10 000 as an i­ni­ti­al start-up e­mer­gen­cy fund.

Get rid of debt

Fo­cus on paying off debts, star­ting from the smal­le­st ba­lan­ce and wor­king your way up. Debts with the smal­le­st ba­lan­ces are gi­ven pri­o­ri­ty be­cau­se they can be cle­a­red off the list far mo­re quick­ly than lar­ger a­mounts. If two debts are si­mi­lar a­mounts, then the one with the hig­hest in­te­rest ra­te should be paid off first. On­ce a debt is paid off, use the mo­ney you we­re paying as the in­stal­ment to add to the next debt to pay off the se­cond debt fas­ter.

3-6 mont­hs' sa­vings

Now that the debt has been paid off, it is ti­me to build a full e­mer­gen­cy fund that co­vers all hou­se­hold ex­pen­ses for at le­ast three mont­hs, but i­de­al­ly up to six mont­hs. This will fi­nan­ci­al­ly pre­pa­re you for so­me of li­fe's lar­ger sur­pri­ses, al­lo­wing you to a­void get­ting back in­to debt for good.

Put a­way for your gol­den y­e­ars

Ma­ny South A­fri­cans don't ha­ve e­nough mo­ney to sus­tain them­sel­ves w­hen they re­ti­re. If you ha­ve paid off your debt and ha­ve a full e­mer­gen­cy fund, it is ti­me to shift fo­cus to put­ting mo­ney a­si­de for re­ti­re­ment. The mo­ney that was u­sed to pay debt can now be u­sed to build a fu­tu­re. In an i­de­al si­tu­a­ti­on, a mi­ni­mum of a­round 15% of the hou­se­hold in­co­me should be in­ves­ted for re­ti­re­ment. T­he­re are se­ver­al re­ti­re­ment fund op­ti­ons a­vai­la­ble, so you should be a­ble to find one that meets your cri­te­ria. A fi­nan­ci­al ad­vi­ser could pro­ve to be a gre­at re­sour­ce at this sta­ge.

An e­du­ca­ti­on fund

Ter­ti­a­ry e­du­ca­ti­on and all the as­so­ci­a­ted ex­pen­ses can be cos­t­ly, es­pe­ci­al­ly if you ha­ve mo­re than one child to think a­bout. Whi­le in­ves­ting in their e­du­ca­ti­on is ex­pen­si­ve, t­he­re is no bet­ter way of pre­pa­ring your child­ren for the fu­tu­re. E­ven if you don't cur­rent­ly ha­ve child­ren, put­ting mo­ney a­si­de for e­du­ca­ti­on will put you a­he­ad of the cur­ve.

Pay off your bond e­ar­ly

O­ver the term of a ho­me lo­an, hund­reds of thou­sands of rand is spent on paying the in­te­rest. You can vas­t­ly de­cre­a­se the a­mount of in­te­rest you pay by in­cre­a­sing your bond pay­ment to re­du­ce the term of the lo­an. E­ven a small ad­di­ti­o­nal monthly pay­ment can ma­ke a big dif­fe­ren­ce to fast-tracking your fi­nan­ci­al free­dom as a ho­me­o­w­ner.

An in­cre­a­se of R500 on a 20-ye­ar bond of R1mil­li­on, at an in­te­rest ra­te of 10,5%, will re­du­ce the term of the lo­an by al­most three y­e­ars and will sa­ve you

R221 106.

Li­ve li­fe and be ge­ne­rous

The fi­nal step is to li­ve li­fe and be ge­ne­rous. Exe­r­ci­sing dis­ci­pli­ne for a few y­e­ars will set you up for the rest of your li­fe. Con­ti­nue to set go­als and bud­get e­very month, but ha­ve so­me fun al­ong the way.

P­ho­to: www.cashflo­w­ga­me­club.com

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