Keeping your finances in good shape is ongoing work. Just like keeping a car roadworthy, you need to constantly maintain your finances, doing regular services and tackling any little issues as they come up. We’ve broken down the year into a monthly diary of steps you should be taking to keep your finances fighting fit.
You’ve just had a holiday, now it’s time to get back to work. Things cost more this year than last year and you probably have some new expenses, so sit down and work out a budget of your monthly expenses, needs and wants. Allocate the necessary funds to each of those areas, and commit to sticking to your budget for the rest of the year, even if you revise it as you go along.
Your primary financial objective should be eliminating debt, so make that a leading budget item, resolving to pay off more than the minimum payments required. You can use either the snowball technique, where you pay extra into your smallest debts first, until they are paid off, or the avalanche technique, where you pay extra into your highest-interest debts, until they are paid off.
If you have too many lines of credit to manage, you can also speak to your bank about consolidating your debt. The bank will lend you the money to pay off all your debts, and you just pay the bank one monthly sum. But this will only work if you close all those other accounts and remain disciplined!
And if all your other debts are clear, commit to paying a little extra each month into your bond.
Now that you’ve made it through January and the year is buzzing a long, it’s time to set some savings goals. You should have both short-term and medium-term savings plans in place (long-term savings are for your retirement, and we’ll tackle that in a separate point). Short-term goals cover things that you want to buy in the next year, like a sofa, a holiday or a new sound system. Do not buy these things on credit, but rather allocate a monthly amount to a savings account to be transferred as soon as your salary clears.
Medium-term savings are for money that you will need within the next five years. For instance, you might need a deposit on a house or car, even if you’re not planning to buy one right away.
You should also have money in a rainy day fund or a retrenchment fund, so allocate an amount to pay in each month, with the goal of getting three months’ worth of your salary saved up.
South Africans are entitled to run one free credit check against their name each year. It’s a good idea to do this because some creditors do not follow proper procedure to get you blacklisted, so you may only find out that you have been when you apply for credit. If you don’t know about it, you can’t fix it, so approach a credit bureau to run a check for you or do it online. You can claim your free annual credit report through either TransUnion, Experian, XDS or Compuscan.
Most of us hate visiting our banks and do everything we can to avoid it. But you should make an appointment every year to visit your bank to review whether all the banking products you have are still right for you. Keep the minimum number of accounts to meet your needs. Discuss what each account is costing you and work out whether there is a cheaper option. Ask if there are any products that you should be adding to your portfolio. And while you’re there, find out if it’s possible to reduce the interest rate on your bond.
If you don’t have a will, bump this point right up to January – especially if you have children. But once your will is written, outlining who should receive your assets and who will act as guardian to your children if you pass away, you should review it annually to make sure it is a true reflection of your current wishes. Read our blog on how to go about drafting a will.
Use your budget to review where you are spending money and investigate every possible way of cutting costs. Look at everything from the relatively simple step of cutting back on a second cappuccino every day to doing cost comparisons of your most frequently bought groceries to eliminating unnecessary monthly expenses like satellite television or an unused gym contract to investigating solar water heaters for your home.
Every year, you need to have a look at your portfolio of retirement products to make sure that they are delivering the returns you need, beating inflation and ensuring that you will be able to live a comfortable lifestyle after you finish working. Make an appointment with your financial advisor, draw up a list of questions and make sure that they are answered to your satisfaction.
Sit down with your insurance policies and make sure that you have cover for all the necessary items – especially if you have any new high-value possessions like jewellery or electronics. Also make sure that you are paying a lesser rate for any items that have depreciated since you insured them – like cars and computers.
Don’t neglect your long-term policies. Review your life insurance, dread disease cover and disability insurance policies. Changes like marriage, the birth of a child or an increase in the amount of debt you have could mean that you need more cover.
Remember that you also need to inform your insurer if your risk profile changes in any way, for example if you start smoking or change jobs. Check your policy documentation for details.
The income tax deadline should still be a while away, but start getting your ducks in a row now. Work out your income, tally up your expenses, get your IRP5 from your employer (especially if you have more than one), and file your tax return well in advance of the deadline.
Although you set a budget at the beginning of the year, things will have become more expensive by now. Have a look at your increased costs, and make sure that your budget is still a realistic reflection of what you need to spend, making adjustments where necessary. Do another round of cost-cutting if you have to or are able to.
In December, you are able to upgrade or downgrade your medical plan for the new year. Take the time now to look at your medical expenses, what your medical aid covered and the costs you have incurred yourself to work out whether you are under- or over-covered. Use a tool like Medical Aid Online to compare plans and even schemes based on your requirements.
After a year of financial maintenance, now’s the time to assess how your diligence has paid off. Look at your budget and see whether you met your savings goals and your projected debt repayments. Use the information you’ve gained over the year to make sure that you have the right banking and saving products for your needs. Assess whether any cost-saving measures you embarked on actually saved you money. And then, use this as a basis for setting a realistic budget when the whole cycle begins again next year. Good luck!