Summer’s here and the number of avid joggers, enthusiastic cyclists and cars in the gym parking lot suggest that plenty of us are working hard to get into shape before we hit the beach.
Given the financial impact of rising inflation and interest rates combined with sluggish economic growth, exacerbated by loadshedding, it’s also a good time to think about your financial fitness, says, product head at specialist loan provider Neven Narayanasamy, of DirectAxis.
“Just as getting back into physical shape after winter will provide long-term health benefits, a good financial workout will also get you ready for the festive season, the year ahead and will pay dividends over time.”
Another reason now is a good time to assess your financial fitness is that this year inflation is higher than it has been at any time in the past six years.
Inflation eats into the purchasing power of your earnings. Its impact on your financial well-being becomes clear when you consider its effect over time. Cumulative inflation since 2016 means that your money now buys 34% less than it did then. Most people’s income has not grown by that much.
Successive interest rate increases mean that people are paying more for bonds, car finance and other loans, which is also affecting how much they have left to spend each month.
To carry on living within the same lifestyle with less money is the financial equivalent of eating poorly, drinking and smoking and ignoring the health risks.
Here are five tips to improve your financial wellness:
1. Set some goals.
It’s important to be realistic and to have a timeline for achieving them. If you’ve never run more than 5km it’s unrealistic to think you’ll be able to run a marathon. You’ll need to build fitness over time until you’re ready to run 42km. When setting your financial objectives, start with a series of achievable goals rather than trying to take on a huge challenge and getting disheartened. Once you’ve won a few small victories, perhaps settling and closing an unnecessary account, you can set bigger goals, such as saving or investing money each month.
Some financial experts recommend the 50/ 30/ 20 rule as a guide on how to prioritise your spending. It suggests using 50% of your income on essentials such as food, rent or paying your bond, spending 30% on discretionary expenses such as clothing and entertainment and then saving or investing the remaining 20%.
“While this isn’t possible for everyone, particularly given the circumstances in which many of us now find ourselves, consider it as a guide, something to strive towards,” says Narayanasamy.
2. Get financially literate.
This means acquiring the skills and knowledge that allow you to make informed financial decisions. There’s plenty of easy-to-understand, free information available online including here: www.directaxis.co.za/make-a-plan/all
Start by finding out more about things that affect your day-to-day financial affairs. For example, understanding insurance, getting the most from your medical aid, reducing your cellphone costs or saving on electricity.
As you find out more you can expand your knowledge and learn about investing or what compound interest is and how it can work against you or in your favour.
3. Spend less than you earn.
This means drawing up a budget. You can find a budgeting tool here: https://www.directaxis.co.za/make-a-plan/set-financial-goals-and-manage-your-finances-like-a-pro . Alternatively, just draw a line down the middle of a piece of paper. On the left list all your income and on the right all your monthly expenses. Your bank statements for the past few months, bills and receipts can all help you build an accurate picture of how much you’re spending and on what. You can then see if there are any expenses you can cut to save a bit of money. Revisit and update your budget each month.
4. Try to save or invest something each month, even if it’s not the 20% that the 50/ 30/ 20 rule suggests.
By budgeting and keeping tabs on your expenses and avoiding unnecessary spending you may be able to save some money each month. Ideally try to ring-fence this. A tax-free savings account is one option and should help to avoid the temptation of spending it.
Another tip is to put your saving on autopilot by having a fixed amount automatically paid into a savings or investment account via a stop order. What you never see you won’t miss, and you’ll be surprised how quickly the savings build up.
5. Track your progress.
A good way to keep track is by regularly checking your credit score. There are plenty of free tools that allow you to do this including www.directaxis.co.za/your-pulse. In addition to a credit health rating, it gives you a list of your monthly expenses and suggests ways to improve your score.
“Getting off the couch and going for that first walk, run, ride or gym session can be daunting. So can making the first step to take control of your finances, but once you’ve started it gets easier over time and can be incredibly rewarding when you reach your goals,” says Narayanasamy.
