Does it feel like everyone around you is managing their money better than you are? Financial FOMO is a real thing, but it doesn’t have to be! Here are five ways to also be ‘good’ at money.
1. Spend less than you earn
It sounds easier than it is… The first step is to have an overview of all the money that comes in every month, and the money that needs to go out (bond payments, rent, utilities, insurance etc.). Whatever is left should also have a clear destination, even if it’s slightly more flexible.
Track your expenses using 22seven and distinguish between Recurring and Day-to-day expenses. Recurring expenses (like your bond repayment) are non-negotiable but challenge yourself to spend less on day-to-day expenses, like eating out and groceries. Regularly check to see if you’re on track.
The 50/30/20 budgeting method is great if you’re feeling stuck. Basically, 50% of your net income goes towards recurring expenses; 30% to day-to-day expenses and 20% to the future, like paying down debt, retirement savings, emergency savings etc.
2. Pay off debt
There’s ‘good’ debt and ‘bad’ debt. Some examples of good debt include a home loan (if the home will increase in value over time) or a student loan; bad debt comes in various forms like store cards, credit cards and any other short- to medium-term loans.
Only borrow what you think you can afford – banks and lenders will often provide you with more credit than you may need. Repay your loan instalments on time each month: missed payments can result in penalties and interest. If you can, pay more each month towards your loan, above the minimum amount. This requires discipline but it will dramatically reduce fees and interest in the long term.
3. Save for emergencies
Life throws curve balls, and those curve balls cost money. Plan for the unexpected so you’ll be prepared. For small emergencies like a stolen phone or car breakdown, consider setting up an emergency savings account (aim for a total that equals three times your monthly expenses). Only touch the money if the very worst happens and you don’t have additional funds to cover the shortfall.
For bigger emergencies, consider adding additional services to your medical aid or insurance policy. Gap cover is an example of insurance that provides extra coverage in hospitals when your medical aid runs out.
4. Invest for retirement
Planning for an event so far into the future might seem unimportant right now, but by harnessing the power of compound interest you can grow your wealth exponentially over time. Saving for the future can take different forms – the most popular is a retirement annuity or pension fund. Saving now not only allows your money to grow over the long term, it can also help reduce how much tax you pay.
5. Protect against the unexpected
As you get older, you’ll accumulate many of the same things your parents did: a family and a home… and health issues. Sorry to be a downer, but the more things you have, the greater the responsibility to protect them all. Insurance becomes more expensive as you get older, and so does medical aid. While insurance payments may feel like sending money into the abyss, the peace of mind that comes with being properly covered is priceless.
If you need help getting your ducks in a row, it’s always best to speak to a certified financial advisor, who can help you get started on a long-term saving journey. Good luck!
