This 3-Step Budget Challenge Doesn’t Feel Like Hard Work And You’ll End Up With A Tailored Spending Plan
We asked a financial advisor to take us through the steps you need to take to create a budget that'll work for you IRL too.
How to make money is top of mind for pretty much every single person RN, right? We’re with you. According to the latest Old Mutual’s Saving and Investment Monitor Covid-19 Special Report, South Africans are definitely feeling the economic pinch with 58% experiencing high to overwhelming financial stress, compared to 38% in 2019.
The report also showed that 26% of people have fallen behind on their home loan payments (compared to 7% in 2019) and 28% have fallen behind with credit card payments (compared to 15% in 2019). Ouch.
The stats show that people have very little savings to use as a buffer in emergencies or during unprecedented events like COVID-19, where salaries have been reduced or even cut completely.
The pandemic has also highlighted what’s truly essential, though. During lockdown level 5 when we were confined to our homes, unable to travel or visit our fave restaurants, we learnt that our needs are very basic. Remember all those savings?
Now that we’re out and about again, it’s tempting to throw a bit more money around. But setting up savings goals is an important step in outlining what you’d like to achieve financially, and then working towards this goal. So, where do you want to be financially in 2021?
Yup – in 2021 we’re all about #doingitforme, so why not renew your finances with the help of the experts at Old Mutual? Here, they share some practical ways to save and make even more money next year…
Like with all things, start with a budgeting tool that works for you – like 22seven, a free budgeting and investing app from Old Mutual. It’s like having a money coach in your pocket, helping you track your spending across all your accounts.
Remember, nobody’s perfect – especially when it comes to money. We can all be a little impulsive at times and make poor money decisions. The bonus about 22seven is that it actually embraces that human fallibility and helps you become more aware of how you use your money while providing tools to help you use it better.
1/ Tracking where your money is going each month is a critical step. Ultimately, you need to
reach a stage where you are in full control of your finances and not the other way around.
2/ Drawing up a budget is a simple process on 22seven. It shows you what you are spending your money on, helping you to identify areas where you can cut costs.
3/ List your expenses in order of your needs, not your wants. This will help you to cut out non-essential spending.
You know what your goals, dreams and hopes for the future are, obvs. Now a financial adviser comes into the picture to help you plan for the finances needed to actually achieve those goals. A great financial adviser is trained and accredited in helping you to have a plan in place to provide for unforeseen eventualities (think: illness, retrenchment and other risks).
1/ Saving money for retirement is your most important long-term savings goal.
Starting to save early leaves you with a longer period to invest, so you can take advantage of the power of compound interest.
2/ Save something each month towards an emergency fund.
By doing this, you avoid going into debt if unexpected situations arise. Emergency savings should be kept in a separate account to discourage you from dipping into it. Instead of saving your money in a savings account at the bank, why not explore the option of investing in a tax-free savings account that makes the most of your savings?
Due to the pandemic, many people are struggling to make ends meet – they’re either taking on debt to cover expenses or borrowing money from family and friends. This means people are potentially not saving enough for their future.
If debt is the nightmare that’s keeping you awake at night, know that there are ways to overcome it. Avoiding your creditor’s calls or tearing up bills won’t help. If you get a letter of demand, do something about it immediately… but it’s important to know your rights.
1/ Pay off your most expensive debt with any spare money you may have.
In other words, reduce the debts that carry higher interest rates and therefore cost you the most, such as store cards or retail accounts.
2/ Learn to say “no” to yourself and your family.
If it’s not within your means to assist, say so. Make sure everyone in your household understands how important it is for you to get out of debt. This may limit the number of loan requests from friends and fam.
3/ For extra cash, consider selling items you don’t use or want anymore.
Take action today to change your behaviour. Procrastination is often your worst enemy and keeps you from taking the small steps that will lead to bigger change.
We are all different, and our needs and affordability are also different – so there is no one approach for everyone. The sooner you start saving and investing, the better! It’s always easier to save less for longer than not save at all.
1/ Know how much you can afford to save.
Start with a budget, then sit down with an accredited financial adviser who can guide you on the next steps. The sooner you start saving and the longer your time in the market, the better. For example, if you invest R180 a month for 40 years at 10% it would grow to almost R1 million. But if you only had 20 years, you would have to invest almost R1400 a month to get that same R1 million. And if the long-term saving period is only 10 years, you would have to put away over R5 000 a month.
2/ Make saving a habit.
People who set clear goals and have a plan to achieve them are more likely to succeed. The action of saving is behaviour-based and once you get into the swing of it, it will become a habit. Almost everyone knows that you should save money every month, but few people actually do so or are able to do so consistently.
This is where most people fall off the savings wagon. But this is where you have the advantage.