New Year’s resolutions
Getting your finances in order
With Christmas and New Year now firmly behind us, it is time to look forward towards 2013 and to take stock of our lives. From a financial point of view, the following are some New Year’s Resolutions you could consider:
- Aim to reduce unnecessary debt. Becoming debt free is the most important financial resolution you can make. Prioritise your debt and start paying off the debt that carries the highest interest rate, which is usually your credit card. Set yourself a specific timeframe in which you want to do this, say over a 6 to 12 month period, so that at the end of the period you can evaluate your progress. By decreasing your debt, you can free up extra monthly cash that you can invest.
- Take advantage of the low interest rates we have in South Africa at the moment and pay an additional amount each month into your bond. By simply paying an extra R500 per month into a 20 year, R1 million bond, you can save yourself 36 instalments and pay off your bond in 17 years and save R161, 750 in interest. By paying an extra R500 per month into a 20
year, R500, 000 bond, you can save yourself 48 instalments and pay off your bond in 16 years and save R138, 930 in interest.
- Once you have reduced your unnecessary debt, commit to saving on a monthly basis. This
saving can be for different targets that you want to achieve; it may be to buy something
specific, save towards your children’s education, save towards a dream holiday, or to create an emergency fund. You should aim to have your emergency fund cover three to six months of expenses.
- Compile a list of what you spend your money on every month, and identify unnecessary expenses. Then draw up a realistic monthly budget and stick to it. You will be surprised at how quickly you get used to this discipline, and it makes you aware of how you spend your money each month.
- Review your financial plan with your financial planner, to ensure that it is on track. Discuss any adjustments you need to make to ensure that your financial plan remains on track. At the same time, review your investment strategy to ensure that it is achieving its objective (for example, a return of 4% above inflation). If you have too much money in cash, discuss with your financial planner how you should invest this. Over time, the interest you earn
on cash will not beat inflation, after tax. Your money should be invested in a mix of assets (shares, property, bonds, and cash) to ensure it at least keeps up with inflation.
- Is your will up to date? Does it reflect what your wishes are concerning who you would like to inherit from you in the event of your death? If not, urgently discuss this with a suitably qualified person who is able to assist you in this respect. Minor children under the age of 18 cannot directly inherit from you. If you wish to leave money to your children, discuss with an expert how to word your will to ensure that these monies are held for them in trust.
- Review the beneficiaries on your various policies to ensure they are correct. If not, make
the necessary changes.
- Review the benefits offered by your medical aid scheme. Not all costs are paid by
your medical aid, for example, if you suffer a dread disease. Ask your financial planner what the implication would be on your financial plan if you suffered a dread disease,
and what they suggest you do to protect you and your family financially.
- Review your life and disability cover when your salary increases. Is your income protected if you are unable to work for a certain time? Is your cover still appropriate for your
current circumstances? You should also review your life cover when you have a family.
If something were to happen to you and you were unable to provide for them financially, would there be sufficient capital available to pay for their basic needs and education?
- If you earn commission, are self employed or work for a company that does not have a retirement fund, consider investing 15% of your “non retirement funding income” in a Retirement Annuity. You will receive tax relief on your contributions, and the growth in the Retirement annuity is tax-free. At retirement you will have a larger capital amount to provide you with an income during your retirement years.
- If you belong to a company pension or provident fund and have the option of contributing different amounts to this fund, consider contributing the highest possible percentage that you can afford to save. These contributions should be out of pre-tax money, and will help reduce your monthly taxable income. The larger amount saved for retirement will help to ensure you have enough money during your retirement years.