Weekend Argus (Saturday Edition)
Start saving by reducing debt
Set goals to work towards and rope the children in on your saving journey
BETTER health and more wealth – those are the top resolutions that many South Africans make as a new year dawns.
But as January stretches on and there’s too much month at the end of your money, many are wondering how to manage their personal finances and grow their savings in this tough economic climate.
Even if you don’t have access to a financial adviser, there are simple steps you can take to hone your financial fitness and end the year wealthier than you started it.
The key is to set goals so that while you’re skimping on daily indulgences, you know what you’re working towards, says Sigrid Madonko, certified financial planner and founder of Quintus Wealth.
“Step one is to sit down and write down your goals. Then attach a timeline to your goals. Then put an action plan in place to achieve your goals,” Madonko advises.
As the year wears on, regularly review your goals and how your savings are matching up – and be accountable to your partner, a friend or financial adviser.
“When you have a goal, it’s easier to save your money because you know what you’re saving for,” she said. “Make it something tangible that you really would like.”
Great goals to set are to pay off all your debt, or to be able to take your family on a holiday this year, to save for your child’s education, or to be able to eat out at a nice restaurant every month.
Then, Madonko said, you need to look at your monthly expenses and figure out what you can say “no” to in order to afford those goals. Work out how much money you’ll need for that overseas trip, or new car, or to pay off your mortgage. Then break it down to how much you need to save each month.
“Say we want to go on regular family holidays – we could save on extra-murals for our children, so instead of five or six, they just do two,” she said. “We could eat fewer meals out, take fewer weekend trips, watch a movie at home instead of going out.”
Madonko says you should rope in the kids too.
“Get the whole family involved,” she said. “I sit with the family at the beginning of the year, and we set goals for the family, where we say we want to be able to go out to a restaurant once or twice a month, or go on a holiday.”
That way, when young children start asking for things that are beyond the budget, you can remind them what you’re working towards – for example, that amazing holiday or delicious meal out. They’ll understand why you’re saying no, and they’ll learn how budgeting works from a young age.
One crucial way you can avoid your finances spiralling out of control in 2019 is to avoid getting into debt.
“Any debt is bad debt,” Madonko said. “Look at the interest rate – on the small loans they charge up to 20% interest. It’s very high percentage; you’ll struggle to pay it back. If you can’t get out yourself, go to debt review.”
According to Claire Walsh, personal finance director at global asset manager Schroders, one of the best things you can do for your wealth in 2019 is to tackle your existing debt.
“It makes sense to tackle debts with the highest interest rates first,” Walsh said. “It may be worth considering trying to consolidate loans or credit cards and look for low or 0% balances.”
Walsh also recommends tidying up your various accounts and cards, and getting rid of the ones you don’t use.
“Not only does this often result in lots of post and admin, it could leave you more vulnerable to fraud,” she said. “Take stock of exactly what you’ve got and what you need, and look to close those accounts and cards you don’t use.”
Build up an emergency fund of spending cash that you can keep somewhere safe, and once that is full, Walsh advises that you consider investing any further savings.
“Due to inflation, the value of cash savings will erode over time,” she said. “Once you’ve got your cash savings in place, you may want to think about investing for the chance to obtain higher returns than those offered by cash.”
Walsh said you should also be looking after your long-term financial health by taking advantage of your company’s pension scheme – especially if the company matches your contribution by paying in an equal amount.
“If you can afford to do so, you could consider increasing your contribution to the maximum that is matched by your employer,” Walsh said. “This is a great way to save as you are doubling your money you get tax relief on your contribution.”