Recent studies have revealed significant gaps in financial literacy among South African consumers. Many individuals are actively seeking financial opportunities and ways to improve their overall financial situation, yet they often feel undereducated on the subject. While financial planning is not simply a tick-box exercise, below we explore five fundamental areas to consider when evaluating your finances.
Budgeting and Money Management
Establishing a budget is a key step, but it is vital that the budget is realistic and that you adhere to it consistently. Monitoring your expenses closely provides a true picture of your monthly spending habits and allows you to assess whether your current budget is effective. By tracking your spending, you gain valuable insights that enable you to adjust your budget as needed, helping to prevent overspending and avoid unnecessary debt.
There are various tools available, including mobile apps and the spending summary features offered by many banking apps, to assist with this process. Ultimately, having access to accurate information is the first step towards taking control of your finances.
Healthcare and Risk Management
No matter your stage of life, having appropriate medical aid or medical insurance is essential. It is particularly important to ensure that your plan includes some level of hospital cover, as unexpected medical expenses can significantly disrupt your financial stability. Consulting a medical aid broker can be highly beneficial as they can assess your needs and help you select the right plan, typically at no extra cost to you as the premium payer.
In addition to medical cover, it is important to insure against other risks, such as the loss of income due to disability or providing for dependents in the event of your death. Make sure that any income disability benefit you have in place covers at least your after-tax income, allowing your long-term savings to remain intact, as this type of cover usually ends at age 65.
Emergency Fund and Savings
Having an emergency fund is another critical area to address. While it is generally recommended to set aside three to six months’ worth of expenses, it is important not to be discouraged if this goal seems out of reach initially. Starting with any amount is better than not saving at all. Once you reach your target balance in your emergency fund, you can begin saving in a separate account for short-term expenses and goals, such as a holiday or a special celebration. Ensure that these savings are kept in an interest-bearing account so your funds can grow while they are not being used.
Saving for Retirement
Although retirement may seem distant, it is important to begin saving as early as possible – ideally from your first salary. The cost of living continues to rise, so investing in a way that delivers returns above inflation is essential for maintaining your future lifestyle. In addition to the long-term benefits, contributing to retirement funds offers immediate tax advantages. You may also wish to consider Tax-Free Savings Accounts as a supplementary means of retirement savings, providing accessible funds for the long term. The longer you invest in a Tax-Free Savings Account, the greater the tax-free benefit you can enjoy.
Having a Valid Will
Many people mistakenly believe that only the wealthy or those with investment portfolios need a Will. In reality, everyone should have a valid Will in place. Whether you own a bank account, a car, or even a modest savings account, these are assets that must be managed as part of your estate. Having a Will, regardless of the size of your estate, provides clear direction for your family and gives someone the authority to handle your affairs. This thoughtful preparation is a kindness to your loved ones during a difficult time.
These five points serve as a basic guide to bringing order and direction to your personal finances. However, it is important to remember that every individual’s financial situation is unique and requires a personalised financial plan. Consulting with a financial planner can help you develop a tailored strategy and provide peace of mind as you work towards your financial goals.
For more information, see www.fiscal.co.za
