Never has it been more important to put your personal finances in order. The government’s ability to support its citizens is limited – your financial health is your responsibility. But don’t be deterred by doomsayers who say finance is complicated. With our five-point plan it couldn’t be simpler. Answer each of the following questions in turn. Their order reflects the way you should prioritise your money. Consider this test your first investment.
1. WHAT ARE YOU SPENDING?
Do your outgoings
regularly total more than
your income? Most men’s daily spend is considerably higher than they realise. Get on top of
your budgeting.
What is your monthly income after tax?
What was your average monthly spending over the past six months?
Are you spending more than you’re earning?
The working
To calculate your average outgoings, you will need to spend a few minutes going through your online bank statements. This is time well-spent; underestimating your monthly budget by even a seemingly small amount can hinder future financial improvement. Consider this your instant reset button.
The solution
If you’re slightly over, it’s much easier to slash your spending than you might realise. It’s possible to save money by shopping around for almost all of the services you pay for on autopilot every month. Switching to a different cellphone contract, Internet provider or even switching banks to reduce bank charges can make a difference. Repeat this exercise at least once a year – your outgoings
will fluctuate, even if
your salary doesn’t.
2. WHAT DEBT DO
YOU HAVE?
Expensive repayments pile up quickly and being in the red will stop you from using your hard-earned income more productively.
What is your monthly income after tax?
What do your credit card and loan repayments add up to each month?
Divide your second answer by your first and multiply by 100
The working
A score of more than 25 suggests that you have taken on too much debt in relation to your earnings.
The solution
You should use any
savings you have to
pay off debt. It’s simple numbers: the interest
on your credit card debt
is especially brutal. “If you can’t manage repayments,
talk directly to your
lenders immediately,”
says David Prosser, business journalist. It’s in
their interest to come
to a more realistic
arrangement.
3. ARE YOU ON TOP OF YOUR BOND?
It’s the largest financial commitment a man will make in his lifetime. If you don’t have one yet, lucky you. But trust us, you will.
What is your monthly income after tax?
What is your monthly bond repayment?
Divide your second answer by your first and multiply by 100
The working
If your score is above 35, the cost of your bond repayments could jeopardise your financial health – especially if your other outgoings are high. If your score is high – and interest rates continue to rise – you may struggle to stay on top of things.
The solution
You could cut your repayments by re-mortgaging to a cheaper deal. But because most banks are not prepared to negotiate rates your best form of protection is to put as much extra into your bond (assuming it is an access bond) as you can, advises Gregg Sneddon, financial expert at thefinancial coach.co.za. An extra 10% each month will knock
four years off your bond, while 20% should reduce the term by seven years. When rates rise again you’ll be used to paying more and as a result you won’t be caught off guard.
4. AND YOUR SAVINGS?
Now you can start squirrelling something away for those big-ticket purchases or in case of emergency.
What is your monthly income before tax?
How much do you have in a savings account that you can withdraw without notice?
Divide the second answer by the first answer
The working
Your score should be
more than three. Three months’ gross salary is
the minimum buffer
zone to guard against a financial emergency.
The solution
If your savings come
up short, aim to increase them fast. “Keep your emergency money in
an instant access account,” says Prosser. With
additional savings,
consider being more
adventurous. While a stock-market fund can lose money, over the course of 10 years shares tend to outperform other types of assets, says
Sneddon.
5. DO YOU HAVE A PENSION?
If you want to enjoy your retirement, you can’t rely on the state. You need
to be make your own provisions, too.
How old are you?
What percentage of your salary do you put into a private pension each month?
Divide the first answer by the second answer
The working
As a rule, halving your age will give you the percentage of your salary you should put into a pension each month. If your answer was two or more, you are not saving enough.
The solution
Use some of the money you’re saving to boost your retirement fund. “There are tax savings when you use a retirement fund – you can put up to 15% of non-retirement funding income into a retirement annuity and for someone earning more than R300k pa, every R1 into an RA should cost you 70 cents or less, says Sneddon. “Beware, however, if you are part of a pension or provident fund as your tax-deductible amount is limited,” he warns. “Get advice!” The laws of compound interest mean that savings are more valuable the earlier you make them.
