Make these resolutions to give your finances a fresh start too
Pay off debt, start saving, protect yourself and your assets, and invest wisely in 2024. By
Typical New Year’s resolutions tend to focus on creating a new, better you. So why not add improved finances to your list? These tips could help you to end 2024 on a better financial footing than you did this year.
1. Dealing with debt
Kabelo Teme of the Credit Ombud says you should start by assessing your present financial situation, including income, expenses and debts owed. “You can gather information from your creditor providers or by accessing your credit report and then draw up your budget,” she says.
The chief executive of National Debt Advisors, Charnel Collins, says budgeting helps you to know exactly where all your money is going, and also how to save effectively and leave enough money for unexpected expenses and emergencies.
Collins says the 50-30-20 budgeting rule is a good savings strategy and an easy guideline for planning your budget. “How it works is that 50% of your net income goes to needs like rent, groceries and utilities; 30% to wants such as hobbies, holidays and dining out; and 20% to financial goals such as savings and debt payments.
“Understanding your priorities and budgeting according to those needs is what makes this budgeting rule so efficient.”
Other advice is to pay off your debt. Farzana Botha, a risk and savings manager at Sanlam, says credit card debt can rack up exponentially over December. Honestly assess your debt and plan to pay back what you can as soon as possible.
“Look for ways to pay more than the minimal monthly instalments and consider the ‘snowball’ strategy of paying off the smallest debt first to free up funds for the next smallest debt, and so on,” she advises.
2. Savings goals
Ester Ochse, product head at FNB integrated advice, notes that fewer than 22% of South Africans have a week’s income set aside for their emergency savings. She advises that you track your spending so you can identify areas where you can cut down and reduce your spending habits on that category.
“For example, from our stats we see that the average 18- to 30-year-old who earns between R600,000 and R850,000 per year spends R1,882.52 on eating out and treats in a month.
“If they reduce that by R882.52 per month, they have freed up cash that they can use towards saving. They are still having some fun eating out and treating themselves, but by being mindful they can free up some cash to put towards their savings journey.”
Everyone has to build up emergency savings equivalent to one to three months’ income in an account that can be accessed within seven days. Ochse says this is your “rainy day money” to be used in emergencies, and saving for it should be your short-term goal.
“If, for example, you put that freed-up cash of R882.52 into an interest-bearing savings account every month for five years, you would have a final pot of R61,068.70, assuming a return of 5.5%,” she points out.
Once you’ve built up your emergency fund, you can start channelling your savings towards some of your longer-term goals such as a deposit on a house, a local or international trip, or even saving for retirement.
Sticking with R882.52 a month, Ochse says you can turn that monthly saving into R1,808,439.22 over a period of 30 years, if you achieve a return of CPI plus 5%.
3. Insurance for your needs
Insurance is a grudge purchase, but you take out insurance to protect yourself – for example, you protect your ability to service your debt; your income and ability to earn; and your assets.
In terms of debt, credit life policies are often included with home loans, car loans and other credit agreements to cover what you owe if you cannot meet your repayments because of disability or death.
Hilda Nsibande, a business development head at FNB, says there is a good chance that you have credit insurance if you have debt such as a loan, credit card or car finance. In many cases, the credit insurance will provide cover for retrenchment and, depending on your insurance, it may cover between six and 12 months of your credit instalments.
An income protection benefit pays out a monthly income (partial or full) should you become disabled or severely impaired. In the event of retrenchment, your insurer may pay up to 70% of your taxable salary, depending on your tax bracket for up to six months.
The idea is that retrenchment insurance payments over six months will allow you to meet your financial commitments until you find a new source of income, such as another job or starting a business.
Not all income protection policies automatically cover retrenchment, so ask about it before you take out a policy.
Insurance policies should cover assets such as your car, home and home contents. Make sure you read the fine print, and specify specific items under portable possessions. Although this may increase your premium, it will give you peace of mind knowing that items such as laptops or jewellery are covered against loss and theft.
4. Invest wisely and patiently
Citadel advisory partner Shane Murphy says interest rates are likely to remain higher for longer with the possibility of global central banks only cutting interest rates towards the end of 2024.
Murphy advises sticking to an investment plan. “Contain your expenditure so that you don’t have to draw off portfolios, because markets tend to bounce back and return to the long-term averages.”
He says it’s important to remove any emotion from your investment decisions. “If the intention is to build wealth over the long term, don’t be too focused on market movements in the short term.
“A good example is the rand to US dollar exchange rate. Although it is important not to overpay for foreign currency when taking rands offshore, think forward to where the trend of the currency may head towards in three, five and 10 years’ time and focus on the larger trend movements as opposed to the small market movements.
“The same goes for asset prices, so be cognisant of what is happening in the ‘now’, but zoom out to understand where the asset class may be in the future from a price point,” says Murphy.
Citadel advisory partner Kerry King adds: “Behaviours drive results, so if an investor can remain patient, committed and consistent in their strategy, it will stand them in good stead over the long term.”
King says diversification in portfolios, both in terms of currency and asset class, is key in volatile times.
“With the potential of interest rates decreasing globally, we are for instance expecting capital growth in global bonds.”
Murphy says it is essential to have a mix of regular retirement investments and sufficient discretionary (non-retirement) investments that can provide “significantly more options in terms of planning for retirement and ultimately withdrawing from your portfolio when the time comes”.
Pieter Fourie, head of global equities at Sanlam Investments UK, says patient investors are often rewarded. “Compelling investment ideas often take time to be recognised by investors.”
Contain your expenditure so that you don’t have to draw off portfolios, because markets tend to bounce back and return to the
long-term averages