A three-step approach to getting your finances under control
Of course you’ll start saving when you’ve paid off your debt, and never buy shoes on your credit card again. But since you aren’t good with numbers, maybe it’s best to just accept that you’ll never be wealthy. If that’s the way you think, think again, says Marnita Oppermann, parttime accountant and money coach, who has a three-step approach to getting your finances in order.
STEP 1: UNDERSTAND AND BANISH LIMITING BELIEFS
In order to change your obstructive beliefs about money, you need to understand where they come from. Write a ‘money biography’ – a record of your feelings about money from when you can first remember. For instance, if your parents were anxious about money, you may have internalised that anxiety, which has caused you to become paralysed when it comes to your own financial affairs. Conversely, your awareness of their anxiety may have steered you in the opposite direction – refusing to let money cause you anxiety and spending without thinking. Tracking your history will open your eyes to your own pathology.
These are four limiting beliefs that often crop up in Marnita’s interactions: • ‘I don’t have enough money to start saving.’ There’s nothing wrong in starting small: try R100. The key is to begin the practice of putting money away, because it’s hugely empowering to have savings. Work up to saving 10% of your income, even while you have debt. • ‘I’m not good with numbers so I’ll never be good with money.’ Being good with money has nothing to do with accounting skills and everything to do with mindset. Say: ‘I am fully capable of understanding my own finances’ and ‘I can make my money work for me.’ • ‘I can’t afford that.’ Instead, say ‘I have other priorities right now.’ It doesn’t mean you’ll never be able to afford whatever you may want at the time – it just means that at the moment you can afford other, more necessary, things. • ‘I don’t deserve to be wealthy.’ This kind of thinking can result in settling for less than you deserve for the work you’re doing, or lacking the conviction to start that entrepreneurial business you’ve always wanted to, for example. Self-confidence is key.
STEP 2: STOP MAKING THESE COMMON MONEY MISTAKES
Falling into the debt trap. It’s tempting to take on new debt to service old debt or cover living expenses. Don’t! Once you’re in a downward debt spiral it’s hard to get out, and it causes huge stress. ‘The worst kind of debt is buying food and luxury items on credit. If you only make the minimum payments on money you owe, that basket of food or handbag will cost you so much more,’ says Marnita. • Not saving. Start growing a buffer fund, even if you have debt – ideally, three to six months of living expenses. It’s for unexpected expenses such as medical bills or new tyres. Automate it via a standing order. One way to make sure you have something to put away is to cut out a luxury item each month – perhaps alcohol this month, next month your daily cappuccino – and put that money into a savings account.
• Ignoring your finances. Burying your head in the sand because you’re scared or too busy or your partner handles it all, makes the situation worse. Getting a handle on your own money is empowering. • Undercharging. Watch out for this, whether you’re a salaried employee or self-employed. ‘Don’t settle for less than you’re worth, or less than the other party is prepared to offer,’ Marnita says.’
STEP 3: GET THE BASICS IN ORDER
1. List all your expenses for a month – on a spreadsheet, in a notebook or using an app such as WellSpent on iOS or GoodBudget on Android. Assign each item to Fixed Expenses (bills, rent, utilities) or Discretionary Expenses (food, petrol, entertainment and other expenses that you control). This way, you’ll also know exactly what your fixed expenses amount to per month, and your approximate discretionary spending. 2. List your debts, the interest rates and minimum payment amounts. What do you owe? 3. Stop using more credit. 4. Start reducing debt by paying extra towards your smallest debt. Once an account is paid up, add the amount you paid to the next creditor’s payment. 5. Save before you spend. If you save first, you’ll adjust and make do with what you have left.
SMART SAVING TIPS
• Just do it. The important thing is to start, no matter how small. • Steadily increase the percentage of net monthly income saved to at least 10%. • Find better deals. Can you cut anything from your discretionary expenses or swap it out for a more affordable option? For example, trade a R500–R1000 monthly DStv contract for Netflix at R100 a month. Put these savings in your buffer fund. • Prioritise your cash buffer fund (see Step 2). ‘Not only does this provide immense confidence and financial peace of mind, a buffer fund is key to breaking the spiral of debt,’ says Marnita. When unexpected events occur, you can be your own line of credit instead of having to get an overdraft or bank loan at a steep interest rate. Keep your buffer fund in a separate account or, if necessary, use another bank. Treat it as another bill or monthly debit to be paid; that way, you’ll adjust your spending accordingly. • Don’t rob yourself by taking from your savings for everyday items. Reserve your buffer fund for unexpected occasional expenses. • Save a portion of windfalls. Whenever you receive extra money (bonus, inheritance, rebate) allocate an amount towards your buffer fund before spending on anything else. • Pass on the habit of saving to your kids. Encourage them to put away a portion of any cash received, whether it’s pocket money or a gift.