Give your fi­nances a spring clean

With spring in the air, it’s time to make a fresh start. If your fi­nan­cial af­fairs are chaotic, here’s what you need to do to bring them un­der con­trol. re­ports

Pretoria News Weekend - - ENTERTAINMENT -

SPRING has just be­gun, but be­fore you whip out the broom, feather duster or spade for those es­sen­tial spring clean­ing chores around the house, you should spring clean your fi­nances.

John Manyike, the head of fi­nan­cial ed­u­ca­tion at Old Mu­tual, and Su­san Stew­ard, the mar­ket­ing man­ager at Bud­get In­sur­ance, have some help­ful ad­vice.

“Spring is in the air, bring­ing with it the op­por­tu­nity to re­fresh and sort out our lives,” Manyike says. “For some, this may in­volve clear­ing out that chaotic cup­board, for oth­ers, it will be about bring­ing or­der to the garage. But for ev­ery­one, it should also mean tack­ling your fi­nances and get­ting them into bet­ter shape.

“With the strug­gling South African econ­omy and on­go­ing global un­cer­tainty, it has be­come es­sen­tial reg­u­larly to re­view your fi­nances to en­sure they can with­stand the chal­leng­ing fi­nan­cial en­vi­ron­ment.”

Manyike says the bet­ter or­gan­ised you are, the more con­trol you will have over your money.

“You want to be in con­trol of your fi­nances, not the other way around. How­ever, spring clean­ing your fi­nances can be a daunt­ing task, even for the most sea­soned clean­ers. There are debit or­ders, loans, out­stand­ing bal­ances for cloth­ing ac­counts, car or house main­te­nance in­voices, in­come state­ments, re­tire­ment plans, in­sur­ance poli­cies, and so many other boxes to tick.”

Manyike says you should do the fol­low­ing:

• Make a list of all the items you need to ad­dress: short- and lon­gin­sur­ance (life, car and house­hold), debt, sav­ings and un­nec­es­sary sub­scrip­tions.

• Ex­am­ine your monthly bud­get, and if your ex­penses ex­ceed your in­come, cut out things you can do with­out. Just like you get rid of bro­ken equipment or fur­ni­ture that is tak­ing up space un­nec­es­sar­ily, elim­i­nate all ex­penses and pur­chases that are not es­sen­tial. Be very clear on the dif­fer­ence be­tween needs and wants.

• Aim to set aside 20% of your dis­pos­able monthly in­come (the money left in your bank ac­count after de­duc­tions). Put this money into a sav­ings or in­vest­ment ac­count. If you can’t af­ford 20%, set­tle on 10% or even 5% – any amount is bet­ter than not sav­ing.

• Get your debt un­der con­trol and bor­row only if the loan is part of your wealth-cre­ation strat­egy. Know the dif­fer­ence be­tween good debt and bad debt. A home loan, for ex­am­ple, is gen­er­ally con­sid­ered to be good debt, be­cause prop­erty is an as­set that typ­i­cally grows in value. But us­ing your credit card to buy an item that de­pre­ci­ates in value is bad debt.

• Pay off debt with the high­est in­ter­est rate first. For ex­am­ple, if you have a mort­gage bond at an in­ter­est rate of 10% and a per­sonal loan at a rate of 20%, pay off the loan first.

• Pre­pare ad­e­quately for re­tire­ment. The sooner you start the bet­ter. Take out a re­tire­ment an­nu­ity and in­vest your money where it can grow.

“Peo­ple who plan ahead are al­ways in a bet­ter po­si­tion in the long run than those who don’t. Peace of mind comes to those who take charge of their fi­nan­cial fu­ture,” Manyike says.

Stew­ard says South Africans are hav­ing to dig deeper into their pock­ets ev­ery month to cope with the in­creas­ing cost of liv­ing. Add to that the cost of ser­vic­ing ex­pen­sive debt, and it’s clear that smart bud­get­ing is cru­cial.

Data re­leased by Statis­tics SA last month showed that many con­sumers are un­der deb­tre­lated pres­sure, with 48 169 civil sum­monses is­sued for debt in June, to the value of more than R350 mil­lion.

“Changes in both the econ­omy and your per­sonal life af­fect your bud­get, which is why it should be re­vis­ited on a reg­u­lar ba­sis,” Stew­ard says.


Bud­get In­sur­ance rec­om­mends you ask the fol­low­ing ques­tions:

Have my in­come and ex­penses changed?

With many peo­ple re­ceiv­ing their an­nual in­crease in July, you may have a lit­tle more in your bank ac­count each month from the mid­dle of the year. Think about how best to make use of this ex­tra money.

Have I been slack in pay­ing off debt?

It’s easy to get caught up in buying on credit and for­get about how much debt you’re rack­ing up. Go through all your state­ments and pay off out­stand­ing debt, or at least put a plan in place to do so.

Am I cut­ting cor­ners where I shouldn’t be?

In­sur­ance is one of the ex­penses that of­ten gets the chop when peo­ple cut back. The ques­tion you should ask isn’t whether you can af­ford to be in­sured, but whether you can af­ford not to be. With­out ap­pro­pri­ate cover, you could be far worse off fi­nan­cially if, for ex­am­ple, your car is writ­ten off or all your house­hold items are stolen.

Am I will­ing to com­pro­mise and repri­ori­tise?

You love that ex­pen­sive per­fume, you re­ally want those de­signer shoes, you can’t live with­out that pricey steak once a week, but when you’re feel­ing the squeeze at mid-month you may find your­self re­gret­ting those pur­chases. You don’t want to be in the po­si­tion of hav­ing to com­pro­mise on the im­por­tant things, such as health care or your children’s ed­u­ca­tion, so buy down or cut back on things you don’t re­ally need.

Have I been stick­ing to my sav­ing goals?

There are many ways to break the bad habit of not sav­ing. Th­ese in­clude set­ting up a monthly debit or­der to an in­vest­ment ac­count, open­ing a tax-free sav­ings ac­count and in­creas­ing your con­tri­bu­tions to your re­tire­ment fund.

Do I have an emer­gency fund?

Where would you get the money if, for ex­am­ple, you were laid off work or your car needed ma­jor re­pairs? It’s vi­tal to have a fi­nan­cial safety net in place.

• This doesn’t mean scru­ti­n­is­ing ev­ery cent you spend, but iden­ti­fy­ing your spend­ing pat­terns to see where you could save. A good way to do this is to look at your monthly bank state­ments to see where most of the money is go­ing. You may be sur­prised by how much you’re

Do I track my spend­ing?

spend­ing in cer­tain ar­eas. Mak­ing small changes could keep your spend­ing in check.

Am I pay­ing for things I don’t use?

You could be pay­ing sub­scrip­tion fees for mag­a­zines you don’t read, a gym you don’t at­tend or a bank ac­count you no longer use. You could be wast­ing money that should be go­ing to­wards sav­ing or pay­ing off debt.

Are re­wards pro­grammes re­ally ben­e­fit­ing me?

It’s tempt­ing to join ev­ery loy­alty pro­gramme on of­fer, but be­ware that you may be over­spend­ing to re­ceive some­thing small in re­turn. Al­ways read the terms and con­di­tions care­fully be­fore sign­ing up for re­wards pro­grammes, be­cause there may be hid­den costs.

Am I em­pow­er­ing my­self with fi­nan­cial knowl­edge?

The in­ter­net is a good way to find in­for­ma­tion that will en­able you to un­der­stand the ba­sics, but you should con­sult a fi­nan­cial ad­viser be­fore mak­ing de­ci­sions about sav­ing and in­vest­ing.


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