Small change

Do your stress levels rise as month end approaches and you try to figure out how to stretch your rands to deal with the bills flooding in? You are not alone. Take a deep breath and read on. Budget, budget, budget…

Yes, it’s a boring and time-consuming task, but it’s the perfect way to keep track of what you earn and what you spend. Making a quick
calculation or two in your head isn’t going to cut it. Put pen to paper and make it a monthly habit to list your income and expenses.
Nico Swart, head of the Department of Financial Planning at Unisa, says a budget is nothing more than a financial plan to reach
your goals. ‘If you don’t keep a record, how will you know whether your expenses are more than your earnings? How will you know if you
can afford your plans for the future? The point of budgeting is to force you to think ahead. It gives you direction, along with teaching
you financial discipline.’

Resist impulse buying
Get rid of all unnecessary expenses, such as that gym contract you pay every month but stopped using years ago. Only buy an item when you’re convinced it’s good value for money and after allowing yourself a cool-down period of 24 hours. After that, there’s a good chance you’ll have forgotten what it was you wanted so badly the day before.

Think ahead
Independent certified financial planner, radio personality and executive director of Consolidated Financial Planning, Paul Leonard, says poor planning is going to cost you. ‘Let’s say you’re working hard to earn a healthy income. Because you’re so busy working, you forget to buy groceries for dinner and end up ordering takeaways. This is a much more expensive option. You also forgot to buy bread to prepare your sandwiches for the next day, so you have to buy from the local cafe. But if you took time to organise yourself, you could save R10 per day on lunches, that’s a saving of over R200 per month and R2 400 per year.’

Read your bank statements
These are an accurate reflection of your financial movements. Ignore them and you have no idea of your true spending pattern. Have you ever worked out how much you spent on bank costs the previous year? What about all those small amounts you withdrew at ATMs without a second thought? Those expenses are like water slowly leaking out of a bucket – before you know it, it’s empty.

Have a savings plan
It means more than just putting a little extra cash away every month – saving on different fronts means you have a short-, medium- and long-term savings plan. If you have these set up, you’ll be prepared for any situation. In the short term, you should ideally have enough stashed away for three months’ basic living expenses. Medium-term savings should cover those unexpected expenses, such as car maintenance or a deposit for a new car, a child’s rugby trip or medical bills. Long-term savings entails calling in the assistance of a financial planner to help you prepare for your children’s education or your retirement. Don‘t just save what’s left over at the end of the month – make it part of your budget. Take, for example, 10% of your gross monthly income at the beginning of each month and pump it into your savings account.

Goodbye debt!
Add up all the amounts that fly out of your bank account to repay debt, then formulate a plan: the debt with the highest interest rate is your first target. Once that’s paid, make the minimum payments on all your other debts. If your main target is costing you R1 000 a month, you’ll have that available once it has been paid off. Now take that amount and add it to the payments on your debt carrying the second highest interest rate.

It’s time to stop fretting about money and give your finances an upward boost. You’d be surprised with how little effort it requires, says Helen Ueckermann

Double click
• www.asisa.org.za
• www.consolidated.co.za
• www.financialplan.about.com

Make your bonus work
Use your bonus, or at least a substantial part of it, to lessen the outstanding balance on your home loan, says Paul. ‘If your bonus is a disposable R10 000, it can put more than R100 000 in your pocket if you use it wisely.’ Consider this example: you bought a house for R500 000. Your instalments are R4 498 a month (at an interest rate of nine percent) for the next 20 years. If you multiply this instalment by 240 months, you’ll see the house will cost you more than R1 million at the end of your term, meaning you would have paid about R580 000 in interest!

But fortunately there’s hope, says Paul. ‘Take your R10 000 bonus and pay it into your home loan account. The immediate result is that you cut 12 months off your bond repayment period, with a saving of R53 976. If you decide to invest your R10 000 bonus, it can triple over 10 years, or grow to an impressive R900 000 in 40 years.

‘If you invest your R10 000 over a period of 10 years at a return of eight percent, it will put R21 589 in your pocket. Invested over a period of 20 years at 10%, it will eventually reward you with R67 275. Do the same over a period of 40 years and you’ll harvest R452593, and if you invest at 12%, an unbelievable R930 510. ‘This is due to the compounding of interest on interest, and it can make a considerable difference to your nest egg. All this because you made a decision to invest you bonus for one year,’ says Paul.