Four tips to find your way back to financial freedom

I recently came across a post on social media that resonated with me: “You work 40 hours a week to earn your income. The least you can do is spend 20 minutes managing it.” This is so true. If you don’t manage your money, it will end up managing you.

Unfortunately, many people are experiencing this right now. This is one of the reasons so many people are drowning in debt.

Here are four basic but effective steps to take back your financial freedom.

Decide on goals and get insurance Your goals can be short-term (1-2 years), medium-term (3-5 years) or long-term (6+ years). Shortterm goals typically include building an emergency fund or paying off a small debt. A medium-term goal could be putting down a deposit for a house or a car. Long-term could be saving for your kids’ education, investing for your retirement or paying off your home loan.

Deciding on your goals goes hand-in-hand with planning for the unexpected. This is where insurance comes in. A life insurance policy should be one of your priorities and include disability and critical illness cover.

Make a budget This is vital. You can use the tried-andtested 50-30-20 method, where 50% of your after-tax income goes to essential expenses like rent and food, 30% to non-essential “wants”, and 20% goes into a savings account or to pay off debt.

Another option is zerobased budgeting, where you start with a clean slate every month and set your budget according to that month’s priorities and available cash. With this method, you might have to compromise on certain things in certain months depending on how much surplus cash you have.

Plus, you’ll review your budget on a regular basis.

It doesn’t actually matter whether you combine the two or choose one over the other. The most important thing with any budget is that you scrutinise your priorities and focus on why instead of what. Write down all your monthly expenses and ask how each expense is contributing to the financial goals you have set. If they’re not, get rid of them.

Start an emergency fund Things happen and you need to be prepared. An emergency fund is a pot of cash you can access easily if life throws you a lemon, like a medical emergency or an unexpected retrenchment. The rule of thumb is to save about six times your monthly salary to keep your family going while you make a plan.

With an emergency fund, you must be able to access the money immediately without paying penalties.

Manage your debt There is good debt and bad debt. Good debt helps you gain an asset that appreciates over time –a home loan is a great example. Bad debt is the opposite: it allows you buy something now you wouldn’t otherwise be able to afford, and depreciates in value. Sorry to say, but that expensive new car in the driveway is an example.

You need to balance good and bad debt. What can you get rid of that will save you thousands in repayment?

Write down the interest rates for each debt and rank them from lowest to highest. You don’t want any high interest rates, which are typically applied to short-term credit like a store card. Allocate any spare money to the highestinterest debts first, pay them off and wave them goodbye.

Final word. Sorting out your finances is easier said than done. All of these tips really work, but they can be difficult to implement on your own. My advice is to consult a Certified Financial Planner® – a registered professional who will be able to help you with a budget and recommend the best investment products depending on your family situation, your income and your lifestyle. Visit www. fpi.co.za

Thloloe is co-founder of Imvelo Wealth Solutions