Article provided by Milpark Education
Marilize Putter, Dean of Financial Planning & Insurance at Milpark Education, offers 12 steps to help you save more, reduce your debt and get your financial affairs in order:
January: Touch base and determine your spending plan
It is important to first establish the base from which you are working. What are your current assets and liabilities? Do you own any income-creating assets? What is your monthly income and how do you spend your money? Distinguish between fixed expenses such as rent, bond repayments and medical aid contributions, and variable expenses such as food and entertainment. Identify areas where you over-spend and expenses you can cut out. Draft a spending plan for the rest of the year and share this with your partner or family. Also add an amount that you will put away every month to start saving for the December holidays and all the back-to-school expenses thereafter. Finally, you also need to keep track of your spending at the end of every month.
February: Slim down on debt
Many of us are over-indebted due to status-driven spending patterns. Considering the current interest rate and the long-term forecast of further increases, it may be more beneficial to first pay off debt than to save. Identify debt with high interest rates, such as short-term personal loans and credit cards. Contact the bank to find out whether you can consolidate your debt in order to pay a lower interest rate. Additional payments towards the debt with the highest interest rate will also help you to save money as you will spend less on repaying the interest portion of the debt.
March: Make an appointment with a CERTIFIED FINANCIAL PLANNER® (CFP®)
Financial planners need to meet stringent qualification and competency requirements in order to obtain the internationally recognised CFP® designation. A CFP® professional will be able to draft a comprehensive financial plan for you and will be able to assist you in setting your financial priorities.
April: Review your spending plan
By April, we have experienced most of the usual events such as public and school holidays, unexpected school expenses for the children, birthdays etc. Revisit your spending plan, make the necessary adjustments and identify unnecessary expenses.
May: Review your last Will and Testament
When last did you update your Will? Having an outdated Will or even worse, no Will at all, will cause inconvenience for your loved ones at a time when they need to be able to grieve. It is therefore important to visit your bank or to contact a CFP® professional for guidance. If you are in a relationship, irrespective of your marital status or regime, or have minor children, make sure that your Will is up to date and kept in safe custody.
June: Consider your current insurance
Start with funeral cover and ensure that you have some form of cover for every member in your family that will pay out within at least 48 hours. If you have dependants, it is also important for you to consider how you can make provision so that they can retain their current standard of living in the event of your death. Consider the monthly income that you contribute to the household. Do you have any debt that needs to be repaid?
Disability insurance is an important consideration as this will provide you with some form of income should you become disabled. There are other forms of cover that you can consider, based on whether you are self-employed or the level of specialisation of your occupation. Before you take out new insurance, you first need to establish what you currently have. Gather all your policy information, add any group cover that you may have at work and remember to add all the small amounts you have with retailers or banks. Ask your CFP® professional to help you to consolidate the cover and to recommend the most suitable options.
July: Do retirement planning
Irrespective of whether retirement is five or 40 years ahead, you need to consider this carefully. Do you contribute to a pension or provident fund at work? Do you have any retirement annuities? July is the month to ensure that you understand the information on your pension or provident fund statement; for you to establish whether you are putting a sufficient amount away for retirement and to revisit the funds in which you invest, whether it is in your retirement fund at work or in a retirement annuity.
August: Establish an emergency fund
Establishing an emergency fund should be high on your list of priorities. As a rule of thumb, you need to put away between three and six months’ worth of disposable income should unforeseen circumstances arise. The money should be easily accessible and is best placed in a low-risk investment.
September: Review your short-term insurance
If you own a car, a house or other valuable possessions, you need to review your available insurance against theft, fire and other unfortunate events. Consider what you need and the cover you currently have. When last did you request an updated quote from your insurance provider? You also need to update your personal details with the insurer.
October: Consider your savings goals
Whether it be saving for your children’s education, an overseas holiday or any other goal, as with all other things, you just need to start. Establish the amount that you would need, the time-frame you have in which to reach the goal, and then decide on an amount you need to set aside every month to reach your goal. It is best to ask your CFP® professional to assist you to determine the amount you would need or to recommend suitable options for your savings.
November: Review your medical aid options
The medical schemes usually send out communications at this time of year to request us to review our medical scheme options and inform them if we want to change options. If you do not have a medical aid, consider taking out a basic hospital plan on a network option, so that you have something in the event of an emergency or if you need to be hospitalised. If you are a current member, consider the details of the different options and inform the medical scheme should you want to change options.
December: Use your bonus wisely
As soon as you know the amount of bonus that will be paid out to you, plan what you are going to do with it. You may want to add an amount to your holiday savings, to your savings plan for your children’s future education or pay off high interest debt. As soon as the amount is paid out to you, transfer the money to the identified areas and do not allow the money to stay in your account over the holiday season as then you will find needs and gaps to fill with this amount.
Start immediately to take control of your money, and to ensure that you do not have the same uneasy feeling.