Off The Beaten Track

A Crash Course on Managing your Money

“I’ll get serious about paying off my debt when I earn more money”, “I’ll start investing when I have learnt everything about financial markets” or, everyone’s favourite “I’ll start saving next month”. Most of us are guilty of this. I certainly am. We’ve probably all heard the Chinese proverb “The best time to plant a tree was 20 years ago. The second best time is now”. No truer words can ever be spoken. However, I understand where the panic might kick in. Often, when we’re hopelessly lost, finding a starting point to tackle our debt or sort out our finances is enough to make us grab a glass of wine and leave it all for tomorrow.

I’ve put together a few basic steps you can take to help you make some headway on your journey to financial wellness. After all, we are in this together.

Debt

  1. Open your bills, call your creditors and make a payment agreement. Don’t run away, this will only make your life more difficult in the future.
  2. Decide how you’re going to go about getting rid of your debt. Will you employ thesnowball* or ladder**  approach, or a combination of both?
  3. Put your plan on paper and use it to motivate you. This will help you stick to your plan when the going get’s tough.
  4. Set up scheduled payments from your account directly to your creditors.
  5. Don’t miss any payments. Some people want to focus on one account at a time (and not pay anything towards others). Bad idea. This will only get you into more trouble because your accounts will be in arrears (more interest), then they might be handed over (interest plus admin fees). As you can see, this  type of set up will NOT end well.

If you’re comfortable with the idea, find someone you can trust to help keep you accountable so that you don’t fall into temptation. This person should cheer you on on your journey, so avoid a debt grinch, Guilt will not help you get out of debt. While the idea is for your to avoid debt, you don’t want the journey to being debt free to be hell. Find someone who will help you stay focused and optimistic.

Savings

  1. Start fostering a culture of saving by deciding to put some money away. Even if it’s R100.
  2. Shop around for a good savings account. Don’t expect too much in terms of interest – you will be bitterly disappointed.
  3. Decide whether you want to save in a 32-day notice account, or a normal savings account that can be easily accessed. What you choose will depend on your financial goal.
  4. Link your savings account to your current/transaction/cheque account (ie, your everyday account).
  5. Set up scheduled payments from your cheque account, and make sure you pay yourself first. So set the payments to go off on the day you get paid.

Saving money is a good idea, and will help you get into the habit of paying yourself first. As you pay off debt, review your strategy regularly, to see whether you can afford to put more towards your savings. If you suffer from nut-where-has-all-the-money-gone-it-was-here-just-yesterday syndrome, it might be worth while to invest in an app such as 22seven. 22seven allows you to track your spending, thus delivering you from the sinful ways of reckless spending.

Insurance and Life Cover

  1. If you have dependents and you don’t have much in terms of assets and stashed away wealth, I’d suggest you look at getting a comprehensive Life Cover policy. Don’t simply go for what’s cheap. Find a plan that will allow your family to continue living life as comfortably as possible.
  2. Insure anything else that is of value. Car, house, electronics etc. This will allow important things (like your house, or laptop) to be replaced should you misplace them
  3. Health insurance and/or a hospital plan. If you cannot afford medical aid (it happens) look at alternatives like at least having a hospital plan. Of course, you can save cash for medical expenses, but in the case of you being in a coma, accessing those funds might be difficult, so think very carefully about how you approach this one.

Investing

  1. Setting goals is very important here. I would suggest you see a financial planner or adviser when you decide to go down this road. Read a lot of books. A lot. Use the internet, it is your friend.
  2. Understand the risk and reward element clearly. Do not simply hand over your money and hope for the best. Learn to track and read what is happening with your portfolio.
  3. “Don’t put your eggs in one basket”. Don’t. If you’re asking why: African Bank, that’s why.
  4. You don’t have to have a house full of money to begin investing. Do you have R300 to spare every month? Guess what, you can afford to invest. Check out SATRIX or etfSA to see what options you have.
  5. Again, seek professional advice (don’t stop at this post, yes, keep moving). Read. Educate yourself.

 

 

While you won’t do all of this in a day, wherever you are on your financial journey, it’s never too late to get into the path of financial wellness. These are very basic steps you can take to avoid putting off doing what you need to do to achieve your financial goals. You don’t want to look back a year from now and think “I should have…” Have an action plan that you keep in from of you at all times.

A note on ‘debt blitzing’ methodology

* snowball method: paying debt off from smallest account to largest. Works best if you want to keep yourself motivated

**ladder method: paying off high interest debt first. This method saves you a lot more money, but it might seem like results are taking longer because you won’t close accounts off immediately.

Both these methods can be used to address your debt. Find the method that suits you, and your lifestyle. You can use a combination of both methods which works just as well.

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