When it rains it pours! There is no better way to protect your finances than creating a financial safety net that protects you and your finances from those unexpected curveballs that life throws our way from time to time.
Creating a financial safety net doesn't have to result in you having to jump through hoops to ensure that your finances are prepared for life's unexpected moments. Here are some things to keep in mind when you are building a financial safety net.
Know your numbers
Budgeting and being disciplined may sound restrictive when it comes to finances, but it could be a saving grace for many. However, being honest with yourself is the most crucial thing you could do for yourself and your money. Be honest about how much you have, your debt, and what you can afford. You may need help from a financial advisor to get practical solutions to help you get the most out of your money.
Protect yourself from impact events
The COVID-19 pandemic left many people's finances exposed. A study revealed that only 48% of South African’s were equipped with financial literacy. We don't always know what the future holds but investing in financial products such as life insurance and disability cover can create a buffer from unexpected events that can cause most people's finances to take a knock. A common mistake is to think that things such as life insurance are expensive, but this can cost you as little as R149* a month. There is something for everyone.
Savings can start small
When it comes to saving, only 47.05% of South African’s save regularly. The best time to start saving is now. Building an emergency fund or a general savings account can start from as little as R50. Starting with an amount that you will be able to sustain is important. Having a goal can keep you motivated. Building the habit of saving can help you delay impulse purchases that end up costing you. It can also assist in covering emergency expenses.
Manage your debt effectively
Whether you are facing large amounts of debt or a small amount, the best solution is to start paying it off. One of the most common things people tend to overlook is the interest rate that comes with a loan or any credit. Only 1.85% of South Africans understand the impact of their interest rate.
While a loan or credit card may be appealing, always check if you will be able to pay it off along with the interest rate. Focus on settling your debt bit by bit. Whenever you can, contribute more. The aim is to get rid of any debt as soon as possible to avoid owing more than you initially took out.
Cut back on unhealthy habits
It's the small spending that undo us. Saying that you will cut out spending on eating out, entertainment and clothing can be a far stretch for many. However, budgeting for these expenses can help you avoid stepping out of your budget. Beware of small expenses such as takeaways, lottery tickets, and the occasional R100 for treating yourself which can add up at the end of the month.