Money is more psychology than anything else. And the sooner we understand our relationship with money, the better our money can work for us.
Get financial goals.
There is power in visualisation. So, after reading this post, write down your financial goals for the next five years. Do it on paper or on your phone. But just do it. Whether you want to purchase your first home or second property. Start planning for your child’s education needs. Planning and saving for a holiday or planning how you are going to achieve financial freedom, write it down and plan how you are going to achieve your goals. To put our goals into action, we need to see them every day. It will motivate you to keep track and keep you on the right path, away from distractions.
Pay yourself first
Ever heard of the saying ‘pay yourself first’? What does it actually mean? You work hard for your money, and you need to ensure that your money works for you. The best way to do that is to make sure your savings and investments, as well as retirement fund contributions are planned for and deducted before receiving your nett income.
Only utilise and spend what is left after saving. The best tip I can share with you is to automate those savings. So that you do not end up with any excuses on why you could not save this month. Trust me, to make this mind shift is not easy, but once you do it, you will reap the rewards. Think of it as a short-term sacrifice that will let you reap long-term rewards.
One of the most underestimated components of any financial plan is the importance of having an emergency fund. Covid-19 highlighted the need for rainy day funds. An emergency fund, as the name states, is for emergencies. It serves as a buffer or bridging period to cover unforeseen expenses i.e., maintenance of a vehicle, repairs around the home etc.
Ideally one would want to have a minimum of six months of living expenses in this safety net. Which can seem daunting to save at first. But just start and set money aside every single month. Also, make sure you can access the funds easily in case of an emergency, but make sure it is stashed away so you cannot dip into it unnecessarily.
Budgeting - know where your money goes.
Have you ever reached the end of the month or looked at your bank account the day after all your debit orders were deducted? And possibly you were too scared to even look at the balance? The problem most of us have is that we have no idea where our money goes. Debit orders go through, and we just hope and pray for the best.
Change this attitude with immediate effect. Start by checking if you have the correct bank account. Does your type of account meet your needs and goals?
The next step is to use your budget to sync it with the debit orders. Pull one two to three months’ worth of bank statements and scan and scrutinize those statements. Identify areas where you are literally wasting money i.e., ate too much take out? Plan your groceries and meals. Review your policies. And make sure you have sufficient funds for all your debit orders.
Differentiate between good and bad debt
Not all debt is bad. Your home is good debt. Yes, you pay interest, but at the same time, you have an asset that appreciates in value. Your car, if you need your car to earn an income, that is also good debt. The trick is to avoid purchasing a car based on what you qualify for but rather on what will meet your needs. Too often in South Africa, we have this idea that we need a fancy car to show we have arrived. And this could not be further from the truth.
Rather settle for a modest car, and use the amount saved towards your investment goals, settling debt, or paying off your bond sooner. Other culprits of bad debt to keep an eye out for are; credit cards, personal loans, and overdraft facilities. Please note, a credit card is not free money. You will have to pay interest on the balance. Avoid taking out a personal loan unless you really need it.
The interest rate on these types of debt is incredibly high. So, say goodbye to the buy now pay later syndrome as soon as possible. If you do not have bad debt, good. Steer clear. Should you have bad debt, write down all your creditors, amounts owed and create a plan of action to settle your debt as soon as possible.
Spend less, live below your means
The best tip I can share with you is to live below your means. I am not saying do not enjoy your money, please do, you cannot take your money and assets to the grave. But moderation is key. If you want to achieve ultimate financial freedom, living below your means is the best way to get you there. We live in a time where consumption is King, and everything is fast-paced, and convenience is key. But all of this comes at a price. Every time you spend money on things you do not need, you are making a massive sacrifice.
Always exercise self-control.
The best way to resist temptation is to stay away from the traps. Personally, I have unsubscribed from retailer emails. In today’s time, we are flooded with constant ads from waking up in the morning via emails to going online, (impulsive) add to cart shopping has never been easier.
Plan your purchases and cash in on specials when applicable. But do not get caught up in the trap to always upgrade your i.e. cellphone or car or to feel the pressure to have the latest model. It comes at a price. Do something today that your future self will thank you for.