Taking charge of your finances

Too often, we become complacent about our personal finances and as a result, we miss out on the long-term benefits. There is rarely a sense of urgency when it comes to one’s personal finances because the consequences are not easily visible or obvious. Growing your wealth and reaching that goal of endless passive income is a tough task and requires a very particular approach to your finances. It’s an approach that very few adapt mainly because Personal Finance isn’t taught at school level and if you don’t end up studying finance at a tertiary level, you are left pretty clueless on the subject. As a result, very few South Africans ever reach that end goal of financial freedom.

Here are three tips that will help you change that habit of financial complacency and allow you to form a more financially savvy approach to your personal finances:

My bank balance usually ends up on around R0 at the end of the month. This is because I never save money in my bank account. I keep only enough for my monthly expenses; the rest gets invested. If an emergency arises, I use my overdraft facility or I make a withdrawal from my flexible investment plan.
Earning 3% interest from a bank/savings account as opposed to 11% from an investment doesn’t seem to bother most people because they don’t realise the impact it is having on their long-term financial well-being. For example, if you save R2000 a month for 20 years in a savings account that earns 3%, you will have R656,604 at the end of 20 years. If you invest R2000 a month and earn 11%, you will have R1,731,276 at the end of 20 years. That’s more than a million rand difference. This benefit of investing is not immediate so most people continue to save their money rather than invest it. In South Africa, we live with inflation. If you are saving your money in a savings account, e.g. 32-day account, where you earn under 6% interest, that savings is losing value every year. This is why, in order to grow your wealth, it is essential to invest as much of your money as you can and earn inflation-beating returns.

Go through your bank statement every month and look for ways to reduce your expenses or reduce those debit orders. Maybe you are a member of a rewards program and are barely making use of it. Perhaps you have insurance or investment policies that you took out years ago and the debit orders have been going off ever since. Contact a Financial Planner to review these policies and to determine whether they are necessary or not. And have you been reviewing your car insurance premiums every year? The majority of us don’t. Your car depreciates every year. So call the insurance company and reduce the cover so that your premium gets lowered.

Now that you have taken on a financially-savvy approach and reduced those expenses, what do you do with the extra money? Take half of it and spoil yourself or your loved ones. Take the other half and invest it.

Try your utmost best to NOT purchase anything on credit if the interest rate is high which in most cases, it is. I won’t use figures and get technical but take my word for it; high-interest debt is putting a wall between you and financial freedom. If you do already have these accounts, don’t bother investing your money until you finish paying off the accounts because the interest you earn on an investment will rarely be as high as the interest you pay on these accounts.

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