Advice Column, Hero Life, Money

Your 12- month DIY financial planning guide

We are fast approaching the end of the year  and it’s usually that time of the year we are starting to reflect on 2018 and all it’s ups and downs. Before the craziness of the festive season takes over, it’s good to take this time as an opportunity to also reflect on your financial year thus far and looking at plans & ways to improve for 2019. We know how hard it is to make a lot of changes at once, which is why we’ve broken up our guide into 12 months or steps to get you “financially fit”.   There is not really any particular order to address this, but see what is possible for each month of the year and tackle it then.

1.Evaluate where you’re at

Knowing exactly what you have, how much you owe, what’s missing from your financial life (eg a will or insurance cover) can help guide you on what you need to do in the future, and what your areas of strength are, and what your areas of growth are.

2.Draw up a budget

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 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.

3.Review your insurance

Are all your policies up to date (eg is your cover enough or are the beneficiaries selected previously still correct) and is all the information in them correct? Insurance might feel like a grudge purchase, but if anything happens to you or your things, this could be financially crippling.

If you have dependents the life insurance is essential. If you or your spouse die, where will the money come from to look after those you leave behind?

Very few young parents have enough savings in the bank to ensure that their children have the financial means to finish school and continue their education as needed. By having life insurance in place, you protect not only your family’s future, but your children’s education too.

4.Draw up or update your will

If you have a will, you get to decide what happens to your assets when you die. If you don’t do this, regardless of your wealth or assets, they’ll be allocated according to the state’s law and this might not be according to your wishes. It’s also essential to choose a legal guardian to look after your children if anything happens to you and your partner. Don’t leave it up to the courts to decide where your kids will go.

5.Start saving for your child’s university education as soon as possible

Your kids will be financially dependent on you for at least the first 20 years of their lives. It is estimated that parents who send their children to public schools and pay for a three-year university degree, will spend on average R1.2 million per child in today’s financial terms – and the figure doubles if your child goes to a private school.  

By putting away for university now, you save your child the burden of paying back university loans, which will affect their own financial wellness as adults. Look at the different saving options available online such as unit trusts or tax-free saving accounts and choose the option that suit your needs best. Just get started – the sooner you begin, the less you have to put away in the long run.

6.Start settling the debt

Whether you have big or small debt, start by paying off at least one, rather than trying to settle all of them at once, which might not be practical. Choose one with the highest interest, like a credit card, and put aside an amount each month in your budget that can be paid, preferably by debit order so you’re not tempted to spend it elsewhere. Best yet is to get rid of those nasty cards and adopt the behaviour of “f I can’t pay for it cash, then I can’t afford it”.

7.Set up a debit order to save

By setting up a debit order, your money automatically goes out of sight and out of mind, to a place where it can grow. Choose a tax-free savings account or unit trust  that is more difficult to access than a normal bank savings account, so that you’re not tempted to dip into it regularly. You can increase the debit each year automatically, which is great for continuing to grow your savings to keep up with inflation, and hopefully more earnings from your work.

8.Put aside money for emergencies

It probably feels that you’re putting away so much money, you can’t afford anything else, like an emergency fund. Well, setting up an emergency fund prevents you from dipping into your savings, which is there for other reasons and goals than covering the cost of new tyres or a broken dishwasher.

Set up another savings account for emergencies only and don’t get tempted to use it for day- to-day living expenses.

9.Consider your retirement

What will your finances look like when you’re 60 or 70? Will you be ready to retire and stop working, and have you considered that women especially are living longer these days, so you might need enough to get you through to 100. Whether you’re 25 or 40, you need to consider your retirement funds now. Look into setting up an RA fund, even if the company you work for already provides you with a pension plan. And remember, the taxman incentivises you to save as much as possible for your retirement, therefore make sure that if you can afford the maximum contributions to an RA, utilise this tax credit.

10.Assess your medical aid

Review your medical aid each year as the medical aid providers start to communicate their increases for the next year around October/November, with the new fees coming into effect usually around 1 January the following year. The right choice for your is the one that suits your medical needs and your pocket.

If you’re unsure, consult with a medical aid broker to provide you with the necessary guidance on the right option for your budget. Just remember to clarity whether any waiting periods would apply if you are considering changing schemes.

11.Get money savvy

A lot of people leave all the finances to their spouse or financial advisor, but the more you know, the better off you’ll be. And if you’re married or have a partner, make time to discuss your financial world honestly and openly. By following the steps above you would already have gained more knowledge and be in a stronger position. Read up where you can, and turn to experts if necessary (don’t be afraid to challenge them though if there’s anything you don’t understand, or don’t think is the best idea). The less scared you are, the better control you’ll have, and most likely, the better the financial payoff in the long run.

12.Spring clean

What have you got lying around that you don’t need? Can you sell anything that you haven’t used in the last year, or simply don’t want? There are lots of Facebook groups and sites like Gumtree where you can sell things you no longer need. Sometimes less clutter and less “stuff” can lighten the load, and even cut down running or storage costs. Use the money you make to pay off debt, or pop into your emergency or savings fund.

Still not sure where to start or what to do?

Speak to one of the experts at Hero Life who will provide you with all the advice and free tools you will possibly need. Their advice is free and there are no strings attached.

 

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.

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