Personal Finance | Financial planners are more secure

People with lower incomes who plan well are more financially secure than those with higher incomes who do not plan.Photo: File

People with lower incomes who plan well are more financially secure than those with higher incomes who do not plan.Photo: File

personal finance


Last week was the wrap-up of this year’s Absa/City Press Money Makeover Challenge. Bootcamp is a highlight of my calendar because it demonstrates the life-changing power of financial education.

The insight I have gained from this year’s experience is the extent to which people struggle to plan for money events. I’ve had many conversations with people outside of the challenge, and I see a similar trend to anyone struggling financially.

People with lower incomes who plan well are more financially secure than those with higher incomes who do not plan.

Calculate your basic expenses

Many people do not budget for their monthly financial obligations. A simple change in behavior changed Money Makeover candidate Sandra’s entire financial situation. On payday, she will have a feeling of “getting rich”. When the salary is paid into the account, she will spend the money on eating, drinking and having fun for herself and her daughter. Then, in the middle of the month, she’d run out of money on groceries and fuel, and end up having to use her credit card for those purchases.

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Read: Money Makeover | Your Journey to Financial Freedom Starts Here

The solution is simple. Sandra tracked her expenses for over a month and determined how much she needed for essentials like groceries, fuel and her daughter’s diapers. She made sure all her debts were paid and bought all the diapers and non-perishable groceries she needed before buying non-essentials.

Since she knows how much she’s spending this month, she makes sure to set aside some money to pay for fresh groceries and fuel so she doesn’t have to rely on credit cards. Non-essential items can still form part of your spending plan, but they must be part of the plan.

annual spending plan

Another budgeting mistake people make is with quarterly or annual costs, such as tuition. I once talked to a friend who admitted to being overdrawn every three months when her daughter’s tuition was due.

It’s a financial obligation she knows she’s going to have, so she can plan for it. She now divides the total tuition cost for the year into monthly amounts and saves each month. It gave her a better understanding of her true financial obligations, which meant she had money to spare when tuition fees started each semester.

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We can apply this to all “one-time” expenses such as vacations, car repairs, and even regular medical bills or grooming at the barber shop. If we allocated our money to these items every month, we would have a better idea of ​​our living expenses and save ourselves a lot of money not paying interest on credit cards and overdrafts.

How to Save Instead of Borrowing

People with lower incomes who plan well are more financially secure than those with higher incomes who do not plan.

Payday/Emergency Loans

If you borrow for less than six months, microlenders can charge up to 5 percent interest per month, with an annual rate of 60 percent.

Then, they can include initiation fees, monthly service fees, and credit insurance.

So, if you borrow R10 000 for four months, you will pay back:

. R1 430 interest;

. R1 150 entry fee;

. monthly service fee of R276 (R69 per month); and

. Credit life premium R180 (R45 per month).

Your monthly installment (inclusive of all fees) is R3 258 for a total of R13 032 over four months. That loan cost you over 30% of the amount you borrowed.

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read: Money Makeover | Taxes and Multiple Income

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You can jumpstart your own emergency fund by devoting a portion of your monthly budget to emergencies. If you’re supporting extended family, rather than being an ATM, discuss what expenses they will incur for the year and how much you’re prepared to pay for those expenses. Then put it in your emergency fund.

how to save

If you would rather save monthly installments of R3 258, you will be saving R10 000 in three months. So, you can save yourself over R3 000 just by planning your needs ahead of time and saving instead of borrowing.

Holiday/Lifestyle Loans

If you take out a one-year loan, your interest rate will be lower because the APR cap on long-term unsecured loans is 27.75%. But even if you qualify for the 16% tax rate, the impact of the fees can still result in significant costs.

If you borrow R10,000 over 12 months, you will pay R190 per month, paying back a total of R14,280 (42%) of what you borrowed. The longer you borrow, the higher the cost.


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