School holidays are long gone and the reality of live is slowly but surely setting in. Janu-worry is long month and we are all feeling it in our pockets! Well, this is the best time to start planning for your healthy financial year that is 2019. So use the opportunity to see if you could be doing better on the financial front, and look at ways to improve.
This month, family financial experts Hero Life answer the questions their clients often ask them about financial planning, plus how to get started, and make the best of it.
I really want to get started sorting things out in this new year. But is it a good idea to start now?
The beginning of the year is a great reminder to take a few small steps to help improve your financial health and make better money management decisions going forward. With the holiday season, and all it’s associated expenses, being something of the past, there’s no better time than now to get your finances in order for the year ahead.
How do I get started with my financial planning?
You can start with six easy steps:
Step 1: Take a financial inventory (your “original” so to speak). That is see how much you earn, what you spend, on what do you spend your money, your debt situation, your life cover situation as well as savings and retirements. Basically just listing everything you have currently in place.
Step 2: Think a bit about what you want to achieve financially for 2019 and what those family goals are (your destination). These could be things like buying a house in five years, or going on an overseas holiday. Or maybe you just want to be financially independent without any debt in 10 years from now.
Step 3: Create a budget that will make you reach your goals (basically the map showing you how to go from your origin to your end destination). And commit to reduce your spending and increase your income.
Step 4: Categorise your goals and fund these goals with any surplus you have left after you essential living costs every month. This could be e.g. paying off debt sooner, putting more money away for retirement or even just something as simple as starting an emergency fund.
Step 5: Look at ways of increasing your income or decreasing your expense to allow for extra surplus every month to fund the goals you have set for yourself.
Step 6: Take a moment and celebrate your progress!
Beginner financial planning really comes down to just a few basic steps – earn more, spend less and save in a way that aligns with your financial goals.
And remember, if at any time you feel you need a bit of push, there are always professionals available to give you a hand.
Why is a budget so important when it comes to financial planning?
It’s boring and admin-heavy, but by figuring out your fixed and variable expenses, and looking at your bank statements, you’ll see exactly where your money is going which will help you make smart decisions on what you could cut out of your life. You’ll likely find that you’re spending money on things you don’t really need, or you’ll see opportunities where you could be paying less for something.
You could also try the 50-20-30 budget method: 50% of your net income should go towards your needs, 30% towards your wants, and 20% to your savings and debt repayments.
I have kids, so I feel it might be more important to budget and save. Is this so, even though I have more responsibilities?
Absolutely – it’s very important, no matter your expenses or number of dependents.
We know that the concept of saving sounds easy, but in practice it’s tough out there, especially when there are always living expenses and new ones coming up, especially when you have children. You need to find ways to save that make sense – whether it’s setting up a debit order on your bank account for a savings plan, only eating takeout once a month, only buying clothes on sale, scouring supermarkets for grocery specials, or packing lunch to take to work.
The key to changing spending behaviour is to create a goal, and start small. Begin by switching off lights when you don’t need them to save electricity, or waiting a while before buying those shoes, or limiting yourself to one impulse buy a month. You could save hundreds of rands a month, which equates to thousands by the end of the year. This money can be saved for emergencies, help with expenses for unforeseen expenses, or put towards education policies or increased life cover.
What else should be part of my financial plan?
Your financial plan should ideally cover every aspect of your finances: savings and investment, insurance (life, short term and medical), managing debt, estate planning, tax planning and retirement planning.
For a parent, having a will, life insurance, and savings for their kids’ education is a critical part of a financial plan. You might think that you’ll be able to afford your child’s university expenses from your monthly cash flow, or that you don’t need a will because you don’t have a lot of assets. You might also think that because you’re fairly young, you don’t need life insurance, or that your kids will be provided for by their dad, or your parents when you’re no longer there. This isn’t the case and there are many things to consider – your kids’ education, first cars, weddings and general wellbeing. You’ll be doing them and your partner a big disservice if you don’t plan properly to secure any dreams you have for them.
Once I have things in place, what next? Do I always need to change and re-evaluate things?
As they say, the only constant in life is change. Your life and circumstances are definitely going to change over the next 12 months. You might have another child, your expenses will have increased owing to inflation, or you might be living in a new house. All of this means is that you need to re-evaluate your financial plan every year to ensure that you’re still on track to reach those financial goals you’ve set for yourself.
What is the ideal position for me to be in October 2019, when it’s financial planning month and a good time for a review?
As a parent, we believe that you should have some basics in place, such as a will, sufficient life cover, and a savings account and plan. These small things can go a very long way in securing your family’s future.
Hero Life is a company that offers a free online Will, helps you to start saving for your kids’ education, and offers life insurance, designed specifically for young parents. Hero Life is an MMI Group initiative, and underwritten by Guardrisk Life Limited (Reg no 1999/013922/06), an authorised Financial Services Provider (FSP license number 76).
Visit herolife.co.za for more info or WhatsApp us at +27 73 916 9367 to learn more.
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