With increases in the cost of living and rising interest rates, money is not going as far as it used to, pushing South Africans to make hard choices about saving and spending their money, according to Kamal Kalian, head of Affluent Clients at Standard Bank.
Kalian said: “During uncertain economic times like these, sensible budgeting and sound financial planning can make a real difference and lead to future financial security.”
Here are 5 tips get started on the financial planning process:
Start with a budget
Kalian said the key starting point of every successful financial plan is creating a budget.
“When you budget, you know exactly where all your money goes, where you can make adjustments to save even small amounts, and also how to effectively save and leave enough money for unexpected expenses and emergencies,” Sebastian Alexanderson, founder and debt counsellor at National Debt Advisors, said.
According to Kalian, the 50/20/30 rule is a great way to allocate your income in your budget:
– 50% of your income goes to necessities, such as rent or bond payments
– 20% goes to long-term savings, including emergency savings or retirement savings
– 30% goes to lifestyle spending such as entertainment or dining out
Stay on top of your debt
When used effectively, credit can help you purchase assets such as a home and a car. However, if it’s used irresponsibly, debts can quickly spiral out of control.
Make sure that you have a record of your debt, including exactly how much debt you have and the interest rates you are being charged. It’s important that you use any savings or spare cash to clear your debt as soon as you can.
“The golden rule is to always keep your debt repayments as low as possible and always try to pay off the highest interest rate debts faster,” Kalian said.
Plan for the unexpected
If you don’t currently have a fund set up for emergencies, now is the time to get started, according to Kalian.
An emergency fund will give you financial security in times of economic uncertainty, and provide a cushion against unforeseen events that could lead to loss of income. Having an emergency fund available will also ensure that you don’t take on extra debt to cover unexpected expenses.
Tyrone Lowther, head of Budget Insurance, recommends that people have three to six months’ worth of expenses saved up in their emergency fund.
Protect what’s important
It’s important to have insurance cover in place to protect yourself, your family and your assets in case something unexpected happens. An insurance pay-out could help you reduce your expenses in the long run as well as maintain the financial security of you and your family.
Kalian said: “It also makes sense to save as much as you can for retirement, and the earlier you start the better. This will ensure that you have a nest egg to fund your golden years when you are no longer earning an income.”
Don’t wait to ask for help
“If you are struggling to manage, don’t wait until you are in financial distress before you ask for help. Consult with a financial advisor who can review your situation and recommend actions you can take to relieve the pressure,” Kalian said.