Make 2018 count – three personal financial habits to get you on the right track
By Martin de Kock
Nothing makes you realise that you are at the end of the year quite like seeing the first Christmas decorations in your local supermarket. Soon, the lucky ones will head to their holiday destinations and shortly thereafter many of us will sit down with our New-year’s resolution list.
This year, I would recommend that we all add a few financial habits to our New-year’s list. These are practices which, once they become habits, will help you settle your debts quicker, build wealth and protect yourself against any possible national economic downturns in the new year.
1. Create a budget
A budget is the foundation of good financial habits.
Each month, you should sit down and plan what happens to every rand you earn. Track your expenses and income against this budget and change it if your situation changes.
This means that if you suddenly had to pay for an unexpected service on your car, you should adjust your budget and take the money from another expense. By doing this, you remain acutely aware of how much money you have and how you are spending it.
Remember, every rand should be matched against an expense or saving. Don’t create a catch-all account from which you can pay different things, because that is the quickest way to lose track of your expenses and of your financial goals.
2. Pay yourself first
Once you have created your budget, make sure you invest for your retirement and savings before paying other expenses.
There are tax benefits available to you if you want to save for retirement or invest. For example, you can invest up to 27.5% or R350 000 of your pre-tax income into retirement.
Remember that if you save for retirement with pre-tax money, you will have more money in your retirement account and pay less tax. Investing in a tax-free savings accounts is sensible as the growth and interest and dividends on these accounts are tax-free.
A CERTIFIED FINANCIAL PLANNER (CFP®) can help you to select the appropriate retirement investment and start saving.
3. Settle debt
Paying off your debt as quickly as possible will save you more money than you think.
By paying off your debt, you not only have more money to spend on yourself, your household and your retirement savings, but you also save on the very expensive interest payments on your debt.
One way of paying off your debt is to list all your debt from the most expensive (in interest rate and repayment terms) to the least expensive. You then start by paying a little extra on your most expensive debt, until that is settled. Then you move to the next and the next, until you have a lot of extra money to settle the last few debts quickly.
From an emotional point of view, you can consider settling the debts from the smallest debt to the biggest. There are few things that keep you as motivated to kill debt as ticking off a settled debt.
These are simple habits, but they can be difficult to establish in your personal life. Remember that even the smallest step is better than no step at all, so even if you start by only taking one of the steps listed here, you will reap the benefits soon enough.
Last, remember to stick to your plan, regardless of what happens. If you miss your budget one month, or forget to track your expenses, don’t give up. Start again the next month and keep trying, because soon enough you will have established the habit and you will be well on your way to becoming debt free and wealthy.
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