6 Ways to take charge and manage your money
Smart personal finance starts with your right to understand and manage your money. Read on for saving, spending and investment tips to empower you.
Money tip #1: Know where your money flows
“Managing your monthly cash flow is the key to building wealth,” says Jaco van Schalkwyk, a Certified Financial Planner® at Plan-B BlueStar. This is the hard-earned commodity that can work even harder for you, but only if you’re diligent about keeping track of where your money comes from, and where it goes. With careful planning, you can balance your current lifestyle with the financial goals you’ve set for the future.
“It is often not the big expenses (which people tend to be aware of) that cause your month to outlast your money, but the little things that add up,” says Danelle van Heerde, head of advice processes and tools at Sanlam Personal Finance. “That cappuccino every morning could easily cost you R600 a month. Put that away for a year and you have saved R7 200 towards your next holiday or your retirement.”
So, what’s the easiest way to empower yourself with this knowledge? Start keeping records of where your money goes. Van Heerde and van Schalkwyk both suggest using mobile apps for easy record keeping. For easy-to-use personal and family budget templates, click here.
Money tip #2: Be smart about debt
Yes, there is such a thing as smart debt, and it starts with understanding credit from a credit provider’s perspective. Van Schalkwyk explains: “When lenders lend money, it is an investment for them. If they grant you a loan, they could do so with or without requiring you to provide security.” To learn more about how to be responsible with your credit, read this.
Before you take out a loan or bond, consider your current credit rating and how borrowing can impact this. Van Heerde cautions: “Credit cards and other revolving credit negatively impact your credit rating if you keep high balances and only repay the minimum amount each month. The more loans or other debt you default on, the bigger the impact on your credit rating.” As an alternative means of securing cash, she suggests looking at saving for big expenses or using the equity in your bond – as long as you repay it over a short period.
Money tip #3: Don’t underestimate the power of price comparisons
“About a quarter of a typical budget goes into household expenses like food, clothing, entertainment and insurance,” says van Heerde. Just because these are regarded as essentials doesn’t mean you need to pay the first price you see on these items.
Do it in bulk
When it comes to food, buying in bulk pays off in big ways. For non-perishable items, keep your eye out for deals in your local supermarket to stock up the cupboards for the next month or two. And perishables such as fresh produce? Get neighbours, family, friends or colleagues to pool their cash and split a bulk purchase between the group. Van Heerde suggests a great tip for parents with school-going children: group together with other parents in your child’s class and buy stationery together.
Reality Club and Reality Access for SGR members can use their Discount Coupons benefit for monthly savings on household essentials. Reality Club, Core, Plus and Health members can also use their free Personal Assistant benefit to help them shop around for the best prices.
Compare, compare, compare
“Compare prices between data providers and streaming services,” suggests van Heerde. It can feel tedious doing the homework, but you’ll feel a great sense of satisfaction knowing you got the best price for the services you use daily. This also applies to clothes shopping and will save you plenty when you’re updating the family’s wardrobes. “Prices of clothing can differ significantly depending on the store or brand,” suggests van Heerde. “But don’t be penny wise and compromise on quality,” she cautions.
Money tip #4: Get the cover you can’t afford to be without
Life can be unpredictable, which is why getting cover for the bumps in the road is so important. “South Africans typically need insurance because there isn’t sufficient social security that covers you for financial distress if you were to die or become disabled,” explains Karun Varughese, an actuary at Sanlam Personal Finance. He suggests you consider the following:
Income protection & lump sum disability
“At a minimum, you should have income protection for permanent disability,” says Varughese. “This cover will pay you an income until your planned retirement age if you can never work again because you have been permanently disabled, for example, paraplegia or amnesia. This allows you to maintain you and your family’s lifestyle if you were to become disabled.” Lump sum disability can also come in incredibly useful if adjustments need to be made to your home to accommodate your disability.
Sickness benefit product
If you earn an income providing services independently (a private doctor, for example) and therefore don’t earn a salary, being out of work for a week can have a harsh impact on your cash flow and cause financial stress. For this possibility, Varughese suggests a sickness benefit product to avoid short-term financial pressure.
“Life insurance, which pays out when you die, can be used by your dependents to maintain their lifestyle when you are no longer around to provide for them,” explains Varughese. Consider that this pay-out could also be used to settle any outstanding debt or estate duty.
Reality Plus and Reality Health members get up to 30% discount on risk products. Learn more here.
In instances where you are charged for negligence in carrying out your professional duty, indemnity insurance can ease the financial strain this could put on you and your business. Varughese references an example: “If you are a doctor and you make a mistake causing damage to your patient, professional indemnity insurance will cover any amount you become legally liable to pay to the patient.”
Buy and Sell insurance
Supposing you run a business with other partners, Varughese suggests considering Buy and Sell insurance. “This policy will pay out to the surviving partner/s if a business partner dies. The proceeds are used to buy out the deceased’s share of the business,” he explains. “It is also available to cover disability.”
Review your cover
This includes your personal cover, short-term insurance and medical aid. With providers changing benefits and prices over time, it’s important to stay on top of these changes, as they could mean fewer limitations on your budget if you’re smart about it. “You may have benefits that you no longer need, or more cover than you need,” van Heerde points out. “Get help from a registered financial planner and make sure you don’t lose any benefits that you do require.” Make sure you’re not over- or under-insured. Use our free calculators to calculate household contents, building values and more.
Money tip #5: Don’t think that your retirement can wait
You’ve probably heard it before: starting early is key; it’s the easy part if you make the habit as soon as you start earning a regular income. “The sooner you start, the less of your monthly income needs to go toward retirement investments,” adds van Schalkwyk. To illustrate, notice the increase in percentage of your income that would have to be saved the later you start:
Age 20: 15%
Age 30: 22%
Age 40: 41%
(These figures are a guide, and do not constitute advice.)
“The biggest mistake people make is ignoring the effect of compounding interest over time and therefore delaying the start date of investing,” shares van Schalkwyk. The takeaway? Work with time while it’s still on your side to enjoy the benefits of compound interest.
Want to know how much you should put away now to enjoy your golden years in comfort? Use this.
Money tip #6: Invest where it matters
“The poor economic growth in SA leads many investors to believe that investing in the JSE does not make sense. This is incorrect,” says van Schalkwyk. Why? The vast majority of these companies’ earnings come from outside SA, he explains. What this means for you as an investor is that these shares offer good protection to a deteriorating currency.
He also points to investments that outperform inflation such as SA bonds and equities, the latter of which has offered the best inflation outperformance over more than five years. His final thoughts: “Remember: you buy equity to become a shareholder and earn dividends. Share price movements aren’t the only thing to focus on; instead, focus on the income it provides in the form of dividends.”
Want to learn more about how to manage your investment risks? Read this.
True empowerment comes from honest conversations with a qualified financial planner who can assess your financial situation and help you make decisions to put you on the right track to your goals. Book a meeting with one today and start your journey to financial freedom.
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