As we approach the middle of the year, now may be a good time to review your household finances according to the plans you had set for your family at the beginning of the year. If your finances are complex, it’s advisable to enlist a financial adviser. For many people, however, their money matters are straightforward enough that they can do a review themselves. Think of it as being your chief financial officer.
According to John Manyike, Head of Financial Education at Old Mutual, to do this right you will need to deal honestly and openly with each aspect of your finances.
The below however provides a clear breakdown of what this could look like for most people.
Are you following your set monthly budget?
Maintaining a budget, which keeps track of money coming in and money going out, helps you to avoid unnecessary spending and free up cash to help reduce debt and save for financial goals. By tracking your daily spending patterns, you may be surprised to discover that insignificant purchases add up to a substantial amount over time.
For instance, spending R30 on takeaways every working day translates to R150 per week, R600 per month, and a staggering R6 600 annually. Compare your half-year total income and expenses to see if your expenses are higher than your income and cut items you can do without.
Is your debt becoming overwhelming?
One area you need to monitor carefully is how much of your income is going towards paying off debt. If this percentage is over 40%, according to debt counsellors*, you are in danger of becoming over-indebted.
Manyike offers the following debt-alleviation tips:
- Close unnecessary accounts. “Cancel credit cards and store cards that are not essential for your daily purchases. This will help you to avoid impulsive spending and stay focused on your debt-repayment goals”.
- Prioritise high-interest debt. “Create a list of your debts, starting with those carrying high interest rates, such as credit cards. Allocate extra funds towards paying off these high-interest debts first. As you settle each debt, you’ll free up more money to tackle the remaining ones,” Manyike says.
- Don’t fund consumables or entertainment with credit. “Ideally, debt should be used to fund only big-ticket items and appreciating assets such as a property. Using debt for groceries is likely to land you in financial trouble.
- Consider getting help. “If you are in trouble, the first step would be to approach a lender to restructure a loan. You may also consider consolidating your debt or, if you are in deeper trouble, entering a debt review.
Review your goals
Check if you are still on track with your financial goals set at the beginning of the year and make adjustments where necessary. Based on your findings, set new goals if you have to. Ask yourself if your goals are still relevant or realistic and make an appropriate decision based on your analysis. Find tactics to motivate yourself to stay the course. For example, share your goals with someone you trust to help you to keep yourself honest.
at Old Mutual
If you belong to a company pension fund, you will be accumulating savings through contributions deducted from your salary. But ideally you should be saving on top of that for shorter-term goals such as a deposit on a property or the education of a child, as well as emergencies such as needing to fix a geyser leak or needing to get new tyres for your car.
Different products cater to different needs. For example, a bank savings account may be adequate for short-term emergency savings, but for longer-term goals, such as a deposit for a home or car, you would need a product that includes share investments, such as a unit trust fund.
Manyike says you should try to earmark at least 20% of your income for savings of one form or another. “This helps build a financial cushion for the future and can provide support to achieve a comfortable financial journey,” he says.
Have you checked your insurance cover
You also need to review your insurance. Is your family, house, and other assets adequately protected in the case of disaster, death, or loss of income? Short-term insurance covers your property and belongings, while long-term insurance – life and disability cover – is there to provide for your family should anything happen to you.
It is always advisable to review your policies at least once a year, but also each time there is a life-changing event in your family, such as welcoming a new child, to ensure that they are still providing for your specific needs.
Do not forget your will
Finally, you need to ensure your will is valid and up to date. If you die without a valid will, you will die intestate, which can create enormous problems and hold-ups for the loved ones you leave behind. Taking all aspects of your finances into consideration honestly and openly and following a disciplined approach to managing your money is a sure way to prosperity.
