Being financially literate can help protect you from being left financially vulnerable. It's also a good tool that can let you find opportunities to grow and protect your financial safety net.
But according to a report of ASISA, only 23% of South African's set long-term financial goals while only 29% do so infrequently or never. Here are a few ways to know that you are on the right path when it comes to creating a financially sound future.
Before we start
While the points are a good starting point to assess how strong your financial safety net is, it is important to speak to an accredited financial advisor who will be able to offer advice that will be tailored to your needs and will help you get the most out of your finances.
What is financial literacy?
Financial literacy is a useful tool that can help you understand and use financial skills to your advantage. It can give you the ability to assess whether a financial decision will help benefit you or cause you problems down the road such as leaving you financially exposed. Most of us head to social media first for financial advice, but it is crucial to take whatever you read on social platforms with a pinch of salt.
Unless if it comes from an accredited financial advisor. Financial education includes two main components: Budgeting & Investing. Knowing how to maximise these two components to your advantage can have great benefits for you. So how do you know you are on the right track?
You have a budget in place
A budget is crucial and can be seen as the foundation phase of financial planning. However, 54% of South African's have admitted to having a set budget that they follow. Juggling your income and expenditure is crucial.
The aim is always to spend less than what you make, to create a buffer for those unexpected moments life throws at us. A budget can also let you see where you could be bleeding financially and how you can effectively cut back so that your money works for you instead of the other way around.
You find ways to effectively minimise debt
Debt is one of the biggest financial issues we face, not only does it create a financial strain but it also leaves many people financially exposed. According to the ASISA report, 69% of South Africans reported not having enough money to cover their expenses for three months in case of an emergency.
It is better to take small steps by paying off the little debts you may have and gradually building towards tackling the bigger ones. A common mistake people make is taking on more debt, but the aim is to minimize taking on more. You may need to seek debt counselling to find ways to effectively deal with debt.
You pay yourself first
You may have heard the phrase, "Do something today that your future self will thank you for." Paying yourself first is just one of the ways to do this. It can be in the form of building financial safety nets in the form of investments, having a life insurance policy in place, creating an emergency saving fund to name a few. It may not be the most exciting process, but it will be much appreciated in those moments where you and your loved ones need it the most. Creating a financial buffer for yourself is by knowing what financial steps can be most beneficial to you is vital.
You are able to pay your bills
Not being able to pay your bills on time could be a sign that it is time to cut back. Only 43% of people are able to pay off their bills on time. Being honest with yourself and with the people who rely on you financially in terms of what you can and cannot afford will create some breathing room. Make sure to regularly check your credit report and bank statements to see where you are financially.
You have started planning for future
A golden rule when it comes to financial management is being able to protect your ability to earn an income. The second next best rule is to have a financial plan for your future. Investing in your financial future by having a retirement plan can create a safety net for you well into the future. There were 42% of adults who stated that they had no retirement plan in 2017. Furthermore, only 6 out of 100 South Africans will be able to retire.
Your financial future doesn't have to be one filled with fear and anxiety, but by small steps that can lead to long-term benefits. You can start today by getting an obligation-free life insurance quote to start your journey.