Make 2018 your year of financial freedom

Are you ready to face up to your financial responsibilities at the beginning of a new year? You probably haven’t given it much thought, but it is likely, if you’re the average South African consumer, that you found 2017 hard going on your finances.

Not only did the past year see living costs rise, but many had to battle with mounting debt as they struggled to make it to the end of each month.

If you are starting the new year on a zero or negative bank balance and are relying on credit to buy back-to-school supplies, or even to see you through to the end of the month, then 2018 represents an opportunity to kick your bad spending habits – and emerge a more mature and sensible spender.

“With the current economic conditions, it is essential that South Africans become more realistic about their finances and manage their debts more effectively,” says John Manyike, the head of financial education at Old Mutual.

First, you need to learn from your mistakes. It is vital that you take stock of your 2017 finances, by requesting a credit report from one of the big credit bureaus.

“You are entitled to one complimentary credit report a year, so it’s wise to make use of this service. Your credit report will provide you with a detailed credit profile, which will enable you to gauge your risk profile. Credit providers rely heavily on this information before approving any further credit to you.

“It is also crucial to set goals and put a financial plan together. If you need the help of a professional, contact an accredited Certified Financial Planner,” Manyike says.

Becoming more realistic when it comes to your monthly budget is another way to ensure your financial freedom.

“After assessing your expenses in 2017, you need to set a realistic monthly budget for 2018. Be disciplined with your budget and ensure that you include a monthly savings pocket to handle any unforeseen expenses, like car issues or unexpected medical expenses.”

Understanding the difference between wants and needs is a crucial component of your financial rehabilitation, Manyike says. A “need” is a necessity to keeping your household going for the month, such as essential groceries and debt payments. “Wants” are things you can do without, such as that handbag you have been dying to have.

Manyike says that a good rule of thumb to differentiate between the two is to ask yourself whether or not the purchase can wait until next month. “If the answer is yes, don’t buy it … you don’t need it.”

To become more realistic about money, you also need to re-evaluate your lifestyle. “When you have all your financial information in front of you, look at how many times a month you dined out or entertained yourself and your friends. Try to cut back on any unnecessary lavish lifestyle purchases for a while. It is remarkable how much eating out can take up of your monthly budget.”

The last essential element of your 2018 rehab is paying off your debt. Don’t let your financial digressions of 2017 weigh you down in 2018.

“Start by paying off your most expensive debt first – for example, your credit card, or store cards with a high interest rate. Keep in mind that it will be counter-productive to incur additional debt in 2018. Try your best to make 2018 completely debt-free,” Manyike says.

Adopt a smart approach to managing your money

“Drawing up a budget is always a smart first step. This will help you to feel more in control – knowing where your money is going each month and ensuring you live within your means,” says Graham Craggs, the spokesperson for Budget Insurance.
Budget Insurance has compiled the following guide to smart money management:

• To draw up a budget, start with a list of fixed expenditures and other monthly deductions. Have a careful look at what you are spending your money on and identify where you might be “leaking” cash on non-essentials, such as take-aways, entertainment and satellite TV, as well as on essentials such as your cellphone, groceries and transport. Once you have pinpointed areas where you could be spending less, start cutting back.

• Even the smallest adjustments can make a meaningful difference over the long term. Channel the extra money you have into paying off your debt faster, starting with those with the highest interest rates. As your debt repayments get smaller, you will have more money to allocate to more worthwhile causes, such as saving for retirement, a deposit on a new house or a holiday.

• Set a savings goal and consider saving as a non-negotiable, essential “expense” on your monthly budget. Whether your goal is to put away R250 or R1 000 a month, put it in your budget and stick to it.

• Be honest about your debt obligations and your expenses so that you have a clear picture of your true monthly spending.

• Get creative when looking for ways to cut back on costs. For instance, you could establish lift-clubs to save money on petrol and encourage your family to switch off lights in unoccupied rooms to save on electricity costs.

• Put away your credit cards. Rather carry a debit card for everyday purchases and save up for the more expensive things you want.

• Use your smartphone smartly. There are many free apps that make budgeting easy, including 22seven, MyFinancialLife, Sage Pastel My Money, and Spending Tracker.