By John Manyike
It’s incredible how many people make resolutions about getting themselves in shape when a new year begins.
Very few of us, it seems, think about the ‘financial hangover’ that we are dragging into a new year and how much getting personal finances back in shape could benefit our lives.
But, as in past years, thousands of South Africans will emerge from fun-filled festive seasons into 2023 knowing that finances will be tough in January and the rest of the year probably isn’t going to get much better.
The reality is that our money problems will last a lot longer than that resolution to spend more time in the gym.
The irony is that if we were disciplined and spent a little while with a piece of paper and wrote financial resolutions that stuck, we could be getting our finances into shape for years to come.
The art of making financial resolutions that work lies in being disciplined and focused, getting back to basics and taking steps to build a sustainable financial future.
The steps needed to improve long-term financial health, he says, are:
Knowing what you owe.
Getting financially fit can’t begin until you know what your debts are. Listing loans, credit card debt, account balances and other debts is the step that identifies how big the job ahead will be. This is vital as it can help avoid further debt thus having a long-term impact on your credit rating.
Stopping all unnecessary spending and accounts.
Once you know what you owe, you should stop spending on items you do not need. Closing unnecessary accounts will reduce your spending, even though there could be fewer luxuries in the house.
Paying off debts.
Attack debts by paying off those with high interest first (some stores charge as much as 21% interest on accounts). As these are paid off, the money used to settle these accounts can then be allocated to paying off lower-interest debts at a faster rate.
Consolidating your debts
Consolidating debt in a single account means simplifying payments. In addition, as debts will be paid off and are pooled to form a single debt, interest costs will be reduced. This means that the size of the overall debt could also be reduced if you negotiate lower settlement amounts and reducing multiple debit order fees and service fees charged in multiple debts. This requires you to be disciplined by avoiding further debt at least until you pay off your consolidation loan, at least you know your debt free day.
Downscaling your lifestyle.
Changing financial habits will involve taking tough decisions. However, deciding to keep your car for another year, cutting back on restaurant visits and reducing spending on luxury items will have immediate benefits.
Seeing bonuses in a different light.
It is tempting when a financial windfall comes your way to see the income as ‘extra’ and spend it. However, any bonus or gift you receive will work for you if it pays off accounts or kickstarts a savings plan.
Becoming a poly-jobber.
More South Africans are using their skills to create second incomes. These poly-jobbers often take on projects offered on the web. The advantage is that the time required for the task and rewards are negotiated upfront.
Moving from negative to positive financial territory will be faster if money from extra work is used to pay debts. Once you are debt-free, the extra income can help build a savings or investment plan.
Not panicking.
The worst thing to do is panic. You could damage your future security by cancelling life and insurance policies or liquidating savings or investments. Life, funeral, and short-term policies protect you and your family from the unexpected. Raising your risks by using money from these sources will offer only short-lived advantages.
Becoming a saver.
Developing a new personal budget will ensure that more money can be paid into accounts. You will then have funds for emergencies and short, medium, and long-term savings plans.
Getting expert financial advice.
Expert knowledge and advice can make a difference when making a fresh start. A personal financial adviser will assist you by reviewing your budget and developing strategies to help you meet your financial goals. As these strategies will be reviewed regularly and adapted, you can be sure that your savings and investments will continue to grow.
The key to changing bad money habits and becoming financially strong depends on knowing the right way to preserve and grow your money. The time for change is now. To achieve remarkable things tomorrow means taking small steps to build a great 2023 today.
The better you do, the better your future will be.
John Manyike is the Head of Financial Education at Old Mutual.
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