Tips on growing up financially

SOLUTION: BEGIN CULTIVATING NEW, EFFECTIVE HABITS

Whatever you finally decide, always remember The Three Commandments.

Growing up financially involves breaking old unwanted habits and cultivating new and effective ones instead. The flaw in our thinking is that when we think about wealth, we think about it in terms of money. People who earn a substantial amount of money are considered wealthy.

We tend to forget most people are dependent on their job alone for their high income, a job from which they might be fired, only to be left with mounting bills and growing debt. Real wealth is created from assets that generate regular positive cash-flow.

The best place to start is to put together a financial plan, or if you already have one, drag it out of the bottom drawer and get to work on updating the numbers to fit your current situation. There’s no quick fix, but building wealth can be done. It just takes time and effort. Planning your finances means you can start to get ahead. A financial plan also helps you to manage life events such as buying a home, having kids, paying for education, or planning for retirement, without having to sacrifice the future that you want.

The right financial plan can help you minimise the bad, make the most of the good times and protect against the unexpected. The idea is to create a road map for the year ahead – not a rigid daily schedule, but an overall outline of what matters to you and what you hope to achieve in the next year.

In the beginning of the year there was doubt. To begin the process, ask yourself two questions and try to come up with at least six to eight answers to each:

1. What went well this year? 2. What did not go well this year?

For these answers, you should be mostly interested in events you had control over. If something happened that you couldn’t prevent or control, it doesn’t need to go on the list. It’s also important to remember that all answers should be – S.M.A.R.T – Specific, Measurable, Achievable, Realistic and Time Targeted.

The Three Commandments Income

– Has it been growing or falling? Putting a target income figure down on paper that you wish to achieve in the year ahead will focus your mind and allow you to consider what steps and actions you need to put in place now to reach your income target.

– What is your current level of savings and how is it structured? Savings should be primarily focused on emergency savings for immediate use during unexpected events. Target a savings amount equivalent to three to six months salary.

Savings

The idea is to create a road map for the year ahead.

– How much progress did you make on this in the last year? Or was it another year in the trenches with little time spent planning for your inevitable retirement?

Having both personal and financial goals can help you plot a path to the future and can give you the motivation you need to sacrifice now to help make your ultimate dreams a bit more achievable.

Mduduzi Luthuli is the director at Luthuli Capital

Retirement investing

Jaco van Tonder Advisor Services Director