12 Steps to financial fitness

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financial-planningMaking sure that your finances are in good condition and as fit as they can be requires that four simple principles are observed – and even though you may have heard these before, a reminder can be useful.

Wise individuals list the four principles this way:

  • Save money
  • Avoid debt
  • Investment your money
  • Don’t lose your money

You may not be totally satisfied that your present position is in the best shape right now, but when you examine the principles together with some other helpful tips you’ll find it relatively simple to move on the road to total financial independence, and stay there!

Save Money: points to consider

1. Be aware of what you spend – by diligently recording and examining your spending habits could open your eyes to realities your weren’t taking into consideration. For example, regular dining out at restaurants might reveal that they cost you more than R300 each time. Or that the ‘take-away-coffee’ each morning adds up to more than R15 each day.  You might change or regulate your habits when you are faced with the reality that some of these may have been indulgences rather than necessities and the money could have been saved.
2. Having a budget can help – once you are aware of what you spend, it is much easier to self-regulate what budget to allow yourself, whether it be eating out, gadgets, or sporting events.
3. Select the best bank account for your needs – in South Africa there are many accounts regarded as ‘cheque accounts’ but they do not actually issue cheques for you to use to pay with. This is purely a structure the bank uses (and very few merchants accept cheques these days anyway). But if you do have a cheque account that pays you interest it is generally a very small amount and is often offset by the charges. What many people do is use the cheque account to service their day-to-day expenses and debit orders but they keep the bulk of their funds in easily accessible savings accounts. They transfer funds from one account to the other as required. Some people even have accounts in more than one bank, using the one as their cheque/current account and the other as their savings account only because they have discovered that the savings account in the one bank has far superior interest rates than the other, but the one with the cheque account has more attractive banking charges for the day-to-day use. They just transfer funds from one to the other as needed and even the cost of transfers is outweighed by the advantages of more attractive rates. Consult with your bank to find and get the best deal for your circumstances.

Avoid Debt: points to consider

1. Know your credit rating (and correct it if necessary) – You can see exactly what lenders can see as regards your rating. And this rating determines what lenders are prepared to offer you as far as rates, terms and conditions is concerned. Knowledge of your own score arms you with knowledge of your ‘credit score’ and will help you determine how you can negotiate with lenders to give you better rates.
2. Don’t jeopardize your rating, pay on time – credit ratings are influenced not only by non-payments, but by late payments. Paying your credit card or other commitments on time will greatly enhance your credit rating score and will also eliminate ‘late-payment’ penalties on credit cards etc.
3. Reduce or eliminate credit card finance charges – Credit card companies love giving you credit and then hope you’ll pay the minimum balance per month. That’s how they make their money. By paying your full balance before the due date you will eliminate the need to pay any interest on the money and you will have saved yourself a substantial amount. If you’re not in the position to pay the full balance, pay more than the minimum amount, before the due date and still save interest. You will also gradually reduce the total amount owed on the card which will impact positively on your situation. If you have more than one credit card with different companies, make sure you first pay down the card that charges you highest interest. Some people use their accessible home loan to draw out the total balance they owe on their credit card. They use that money to pay off the credit card balance and then direct the monthly card payments to their home loan as this is the vehicle charging the lowest interest rate. This way they are able to pay back the money they ‘borrowed’ from their home loan quicker than if they were paying Mastercard or Visa. They then use the credit card purely for their monthly expenses and pay off the outstanding credit card balance each month before interest is charged.
4. Get a credit card that pays you – also make sure that your credit card pays you interest on any positive balance you have on your card. It may not be much, but it all adds up in the greater scheme of using the bank’s money to your benefit. It also helps pay your annual fees.

Invest your money: points to consider

1. Contribute to a Retirement Annuity – if you aren’t already, consider contributing to your own Retirement Annuity. Apart from the great returns the right portfolio will achieve for you, it will also save you tax by allowing the contributions up to certain limits, to be deducted from your taxable income. Regular contributions will continue to make this a really effective investment vehicle you can have working for you as you move towards total financial independence – plus, SARS allows you favourable tax advantages while you do it.
2. Once you’ve started, always keep investing – the wisest person would have had a deduction from their very first pay cheque made by their boss and have had it put into some kind of savings. And never having had the money in their account to spend would have got used to living without it. Not everyone has been able to achieve that saving goal – but wherever you are today doesn’t prevent you from continuing the savings plan you have initiated. Or, indeed to restart one that has lost its momentum. Savings are not only ‘bank savings accounts,’ there are also things like retirement annuities, endowment policies, unit trusts, shares and investment properties to mention a few things. And it is prudent to have a combination of all these vehicles in your savings portfolio. Consulting with the professional experts in portfolio planning will ensure you are headed in the right direction towards total financial independence. They are the ones who will help you build the best investment portfolio to suit you.

Don’t lose your money: points to consider

1. Create an Emergency Fund – Life has ‘ups and downs’ that we don’t necessarily expect or plan for, like car repairs or a home repair. In order to be able to cope with the unexpected cash outlays these types of events may cost it is wise to have an emergency fund that you can access. The amount in that fund will vary from person to person and will depend on their circumstances and responsibilities. The single person for example, will probably not need to have a fund as large as someone with a wife and children. Some suggest that a single person should aim to have three months salary as the amount saved. While the married person with a house and children should look at an amount of six months salary, or more as their contingency fund. The vehicle for this fund should be a high earning savings account with easy accessibility. The challenge for many will be to only use it for emergencies and not for the ‘nice-to-have’ items, like holidays. They would be encouraged to have a different saving vehicle for those types of things.
2. Insurance can protect you – regardless of your age and circumstances there are a number of ways you can protect you property, income, health and life with various insurance products. Investing in well-structured insurance or life-assurance plans can ensure that you and your family are in a position where you don’t have to ‘lose’ your money or lifestyle. While money can never replace a life nor give health, the products available can make sure that the plans you have for the bigger picture you have for your family is achieved in any circumstances.

Investing your own capital and making financial decisions as you use property investments or other vehicles to grow and protect your wealth is a serious business. You need the very best advice that is available before making any final decision on how your money needs to be employed. For advice and guidance, look to the independent specialists who have the right team of professionals working with them that gives them the track record of success, integrity and security that you want.

Contact me at IGrow Wealth Investments – our team and I will help you on the road to achieving the success you deserve.

Madelein Kottnitz

Madelein Kottnitz

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