How to be financially free

To mark Freedom Day, Georgina Crouth explores ways to achieve financial freedom.

MANY South Africans are still slaves to their pay cheques 24 years into democracy. As a nation, we’re indebted to the tune of R1.7 trillion, with consumers spending money they don’t have.

A survey by 1Life insurance, in which participants were asked whether or not they were in debt and whether or not they save, highlights our lack of financial freedom.

Half of the participants admitted they could save only 5% of their salary each month, while many said they relied on credit to make it through the month. And 72% of the participants were in debt.

Lizl Budhram, the head of advice at Old Mutual Personal Finance, says that according to the most recent Old Mutual Savings & Investment Monitor, an alarming 40% of respondents said they have no formal retirement savings (a pension or provident fund or a retirement annuity fund).

Although most respondents said they lacked confidence in the economy (only 34% felt confident), Old Mutual’s findings show that a third believe the state will take care of them when they stop working – a statistic that has remained fairly constant. What this means, in effect, is that a large number of employed South Africans will not be financially free when they retire, Budhram says.

Financial freedom is attainable however. And it starts with education.

Nicky White, a financial planner at Lighthouse Financial Services, says behaviour change is desperately needed. “South Africans are known to live lifestyles that our European counterparts can only dream of. This has resulted in financial indebtedness that keeps us in bondage.”

White believes that financial literacy should start at school to teach pupils about the discipline that is required to enjoy a balance between saving and spending money. “These skills would have a better chance of filtering through to adult life later on.”

Financial freedom starts with a budget. Set realistic goals for yourself and develop the discipline to stick with your strategy to reduce spending.

“Establish a lifestyle you can enjoy and make peace with that.”

Employ a strategy to pay off expensive debt, such as credit cards and store cards. Not all debt is bad, however. “Good” debt would be a mortgage bond on a property.

“Start setting achievable savings goals to gain financial confidence. Short-term goals could be to save for a tangible item. A long-term goal would be retirement and to leave a legacy.”

It’s a journey that you needn’t embark on alone. White says developing a relationship with a trusted and qualified financial planner, who can help to turn your savings goals into a personal financial plan, is critical.

Budhram suggests paying off your most expensive debt first. “Reduce the debt that costs you the most interest, such as store cards. Consider your long-term goals. Remember that saving money for retirement is your most important long-term savings.”

She says saving for the medium term is vital, too.

“Save something each month towards an emergency fund. This will prevent you from having to go into debt if unexpected situations strike. Protect yourself against loss of income due to death, disability and critical illness.”

The final step in a financial plan is to draw up a valid will, because you must record how you want your assets to be distributed among your loved ones and how your liabilities should be paid for.

“A valid will is an essential element of estate planning and includes everything you own and owe – from property and cars to investments and debts.

“Speak to a financial adviser about developing a financial plan that is relevant to your individual needs, so that you can live within your means today while still providing for your future,” says Budhram. “We are politically empowered; now make sure you are able to enjoy the real freedom that comes with being economically empowered as well.”

georgina.crouth@inl.co.za