While one cannot predict the future, one should certainly be better prepared for it, as all of us have goals to be fulfilled at every stage of life. These goals can only be achieved if you implement a financial plan. So, it’s better to start planning now, as prevention is always better than cure.
Spring is in the air. The birds are starting to chirp earlier, the leaves are starting to re-appear on the trees and the flowers are starting to bud. Nature has rebooted itself, and now is the time to reboot yourself and look at spring cleaning your financial habits, and refocus on your financial plan. Here’s how:
1. Refine your budget
Income is something many of us don’t have much control over, especially if we earn a salary. However, what we do have control over, is how we spend our money.
Your budget is the cornerstone of your financial plan. It helps you take stock of where you are spending your money and, most importantly, where you are wasting your money.
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Whether you are re-assessing your budget or budgeting for the first time, look at what you have spent over the last six months. Six months is a reasonable time as any unforeseen expenses should reflect there.
Once you have assessed these expenses start a budget for the next six months. Your budget should start with your fixed expenses such as bonds, rentals, car repayments etc. Once you have done that, list all your variable expenses in order of priority; from most important to the least important. You can then start cutting out from the least important expenses and start working back up the list.
2. Establish an emergency fund
It seems, every year we are hit with large expenses that we didn’t foresee happening, whether it is car expenses, an operation or a school trip.
We should always have an emergency fund of around three months’ worth of income. This emergency fund should be readily accessible, as unforeseen expenses rarely give us any warning so you want to be in a position to pay bills easily and quickly.
3. Re-evaluate your debt
Debt is an unfortunate evil that we all have to deal with. Debt can, however, be divided into good debt and bad debt. Good debt is debt that helps you build assets, and seen to be cheaper than other debt because the interest rates are lower. A good example of good debt is your bond. Your bond debt assists you in purchasing your property and is cheaper than most other debts.
Bad debt is expensive debt (high interest rates) and often pays for those impulsive purchases. An example of bad debt is credit card debt. The interest on credit card debt is very high and paying with a credit card is far easier than taking money out your wallet.
Now is the time to pay off that bad debt as quickly as possible, as it will not only weigh down your finances, but has the potential to spin out of control. Once this bad debt is paid off, remember not to use your credit card for items that do not fit into your budget.
4. Start a savings fund
We are all happy to have debit orders come off our accounts to pay others. Most of us therefore end up paying ourselves last, if at all. Make savings (not your emergency fund) a part of your budget.
Assess your medium term goals. Medium term goals should be anything you are planning for in three to five years from now, such as purchasing a car, putting a deposit down on a home or planning an overseas holiday. Are you on track and have you put a savings plan together for these?
When it comes to the long-term view on savings, are you confident that you will maintain your lifestyle in retirement? Are you saving sufficiently in order for you to maintain your lifestyle in retirement? Now is a good time to take stock and if necessary speak to a certified financial planner to assist you with this.
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5. Assess your insurance cover
Do you have sufficient insurance in the event of death, disability and/or dread disease cover? Are you paying too much for it, or do you have too much cover? Now is the time to reassess this, and ensure that you and your family are not adversely affected should something unfortunate happen to you.
6. Regularly review your financial plan
Once you have spring cleaned your finances, don’t then put it in your bottom drawer. Review your finances constantly, and adjust them in line with any changes that may happen in your life.
Whether you’re taking your first step on the corporate ladder, a labourer in the workforce or a CEO of a large corporation; when it comes to managing your finances and debt, and ensuring you have the right financial habits, everyone can do with some guidance and advice. Don’t be afraid to seek financial advice from professionals financial advisors.