When it comes to personal finance, maths is not just a subject from school days. Take the time to understand basic concepts and you’ll be able to budget more effectively, manage your debt better and secure your financial future. Sit down, class: here’s today’s lesson.
Budgeting: The foundation of financial success
At the heart of every successful financial plan lies a well-crafted budget, which aligns with your income and expenses. You don’t even need a calculator for this one – let 22seven do the number crunching. Link all your accounts, track your spending and use the budget function to make sure you live within your means and have surplus cash to put towards savings and investments.
Compound interest: The 8th wonder of the world
Understanding compound interest is key to building wealth over time. It allows you to earn a return on the initial amount invested and also on all the accumulated returns. Basically, given enough time, your savings will snowball. You can maximise the power of this mathematical magic if you allow your returns to be reinvested. In other words, keep your gains in the market for as long as you don’t need the money, and your investment should hopefully grow exponentially. (Big word: it means ‘a lot’.)
Debt management: Make calculated choices
Debt is a reality for many South Africans. But if you understand the maths behind it, you can deal with it more efficiently. Start by assessing all your debts and their associated interest rates. Consider consolidating the high-interest debts or renegotiating interest rates where possible. By paying more than the minimum due each month, you can get rid of your debt faster and minimise future interest payments. (Use an online calculator to estimate how much quicker you’ll clear your debt if you increase your monthly repayments – google ‘debt calculator’, there are many available.)
Investing: Watch your money grow
Investing is not just for the wealthy – it's a powerful tool for everybody that allows you to grow your wealth over time. Don’t be intimidated; rather empower yourself by getting to grips with the fundamental concepts. Start by learning about the various investment building blocks like equities, bonds, property and cash. Next, research how to gain access to these by way of unit trust investments or exchange traded funds, for example. Consider diversifying your investments to minimise risk. The internet is your friend: make a cup of coffee and start reading.
Retirement: Secure your future
Retirement might seem like a distant concept when you're in your 20s or 30s, but starting early can make a significant difference. And guess what? When you’re looking at long-term financial planning, maths comes into the equation yet again (excuse the pun). It’s quite a complicated business: you need to estimate how much money you’ll need in retirement, taking inflation into account, then set savings targets depending on how much you can contribute to a retirement fund each month, with a buffer in case things go wrong. You also need to assess your retirement plan once a year, at least, and adjust it according to how your life has changed or might change.
Get help from a pro
Remember that genius kid in the front row who made maths look easy? A good financial planner is like that. They’ll be able to look at your entire financial situation and help you understand all the concepts in this Slice. They’ll also help you implement them so that you can lay the groundwork for financial freedom. Put your thinking cap on – an A+ is within your reach!