These are the first steps in Violet’s financial makeover with Winnie.
Violet was the winner of the 1Life Win a Financial Makeover competition. That means she will have seven sessions with me, Winnie Kunene, Money Psychologist and Trustee on the board of Truth About Money. In September, we had our first meeting. This is how it went.
The purpose of our first meeting was for us to get to know each other, for me to understand her financial situation, and to lay the foundations of her financial plan.
She understood that there is a difference between needs and wants.
Violet is 31 years old, and works as an administrative clerk at a company that installs and services air conditioning units. Violet’s parents died a few years ago and she received the pay-out from their life insurance policy, which she used to start funding her studies in marketing, as well as to cover her rent, transport, day-to-day living and to support her younger brother.
Violet still owed some tuition fees to the university. She got herself into further debt by opening accounts at Game, Jet and Ackermans to buy household goods and clothes for herself and the family that she supports. She now owes R24 000 on those three accounts, with a total monthly repayment of R1 600. Unfortunately, she doesn’t have the money to cover these debts and she hasn’t been paying back the debt she owes to the university at all.
She also took out a staff loan from her company, and the monthly repayment on that is R1 000, which is deducted from her salary, with R3 500 still outstanding.
Once I had heard her story, my first step with her was to tackle those debts. We discussed that the things she had bought on store credit could have waited – that she should have saved rather than spent money she didn’t have. By the end of our conversation, she understood that there is a difference between needs and wants – and that when money is short, only her needs must be attended to.
We drew up a budget and went through it line by line. She earns a take-home salary of R6 400, but we worked out that she only has R400 surplus at the end of every month. This means she can only afford to pay each retail creditor R100 for now, which is less than the monthly repayment that she owes them. I told her that if she visits them and explains the situation, they will accept the reduced payment because her only other alternative is debt review, in which case they will get even less from her. I also suggested that she starts paying the university back R100 a month, just to start making some headway with that debt.
This is a summary of her budget:
|| 6 400.00
|Staff loan repayment
|| 1 000.00
|| 3 800.00
|Maintenance for brother
|| 1 000.00
In December, her stokvel pays out R2 400, so she will use that to settle her staff loan and then she will be able to allocate more money to paying off her other debts. It’s great that she has been putting money into this stokvel, and this shows Violet’s commitment to doing the right thing financially, even if she’s got herself into a bit of trouble. Hopefully, she’ll be able to build on these positive behaviours in future.
In the meantime, no more spending for Violet.
We also looked at areas in her budget where she could cut back on her spending. She agreed to cancel her DSTV, and to reduce her monthly food expenses to free up a little bit more money.
I then set Violet some homework – to make a note of every little thing she spends money on. People often forget the little expenses that chew up their cash, so this is a useful exercise to help her to understand where it all goes. She also said that she was going to look into a couple of ways that she could possibly make some extra money – and will report back to me next month.
That was enough hard emotional and mental work for one session. All in all, I think it went very well with Violet. It was critically important for me that she understands how she got into this financial mess in the first place. She also understands what she needs to do and has the responsibility and commitment to do it. I am looking forward to going on this journey with her and sharing her successes with you.
The views and opinions expressed in this article are those of the authors and do not necessarily represent or reflect the views of 1Life or its employees.