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Financial fitness: Developing a training programme that works for you

Financial fitness sets us on a path to achieve our financial goals.

Following the festive season, many of us resolved to become more physically fit in 2020. As a result, gyms and fitness centres have been inundated with new members and newly motivated ‘old’ members over the past few weeks. Like your physical fitness, you may not be happy with the condition of your finances and would like to put plans in place to improve your affairs. Interestingly, improving one’s financial fitness is not unlike improving one’s physical fitness, and there is a lot we can learn from the comparison.

Rather than furiously hitting the gym with no clear training plan and with the added risk of injury, improving your physical fitness works better if you start out slowly, set realistic goals and stick to your training plan consistently. While not quite financial independence or financial freedom, financial fitness sets us on a path to achieve our financial goals. It’s a bit like starting to train for your first half marathon – you can’t run it yet, but your training plan will ultimately get you there. Here are some key steps to improve your financial fitness this year:

  1. Spend less than you earn
  2. This is the first and most important step when putting together your financial fitness programme. If you are spending more than you earn, your debt will be mounting, and your financial health will deteriorate daily. Any training programme is designed to enhance your fitness over time in order to achieve positive results. If you’re making a net loss every month, it’s time to have a good look in the mirror and make changes. You need to bring yourself to a point where you are in a positive cashflow position at the end of the month before you can take the next step towards financial fitness.

  3. Set financial goals
  4. As with fitness goals, everyone’s financial goals are different. Every person you meet in the gym has a different set of fitness goals. Some aim to lose weight, other wish to gain muscle mass, while others are training to run the Comrades marathon. Set time aside to determine your unique set of financial goals and then write them down.

  5. Prepare a budget
  6. A budget is much like a fitness assessment in that it reveals the current status of your financial affairs. You might not always like the results, but facts don’t lie. Once you’ve done your budgeting exercise, you will be in a position to make tough decisions which may include cutting back expenditure, sacrificing some luxuries, reducing your convenience spend or negotiating a salary increase.

  7. Draw up a financial plan
  8. Armed with the reality-check of your budgeting exercise, the next step is to develop a financial plan. A financial plan is similar to a training programme in that it tells your money what to do. But, like a training programme, it only works if you implement it and do the exercises. Committing to a training programme is a bold move that takes courage and discipline. While starting out your training programme, it is natural to feel overwhelmed by the enormity of it or intimated by the fitter, stronger members of the gym. At this point, it is important to bear in mind that everyone’s financial journey is different. Every runner you encounter along the road is running their own race and so should you.

  9. Automate your savings
  10. Having automated savings is a good indicator of financial fitness. Paying yourself first should be the start of a life-long habit of saving for the future and thereafter living off what is left. Equipped with your retirement goals and a comprehensive financial plan, you should have a clear idea of how much you need to set aside each month.

  11. Don’t use debt to sustain your lifestyle
  12. For most South Africans, going into debt to purchase a home or finance a reliable vehicle is a necessity. However, resorting to credit card and retail debt to sustain your lifestyle is a sure sign that you are living above your means. If you are using credit card debt to cover entertainment costs, buy clothes and pay for groceries, your financial fitness is being severely compromised.

  13. Pay off your credit card in full and on time every month
  14. Responsible use of your credit card means paying the full amount owing every month and on time. In this way, you will avoid paying unnecessary interest and card charges. It also ensures that your credit score remains untarnished.

  15. Maintain a good credit score
  16. The value of a good credit score cannot be understated. One of the main benefits of a high credit score is that financial institutions will view you as a responsible borrower and offer you more favourable interest rates if you ever need to borrow money. It can also ensure easier approval when it comes to renting a property, and generally puts you in a stronger negotiating position.

  17. Use all the free money available to you
  18. Another sure indicator of financial fitness is if you’re taking advantage of the tax deductions and benefits available to you. The most significant tax deduction available is available to retirement fund investors. However, your advisor will be able to guide you on other ways to reduce your tax liability.

  19. Insure your health
  20. Without your health, your ability to generate an income and build your wealth will be severely compromised. Having comprehensive medical aid cover is a sure sign of financial fitness. At the very least, ensure that you have a medical aid that provides in-hospital cover in private facilities at 100% of medical aid rates.

  21. Protect your income
  22. While a medical aid is designed to cover the actual medical costs following an injury or illness, an income protection benefit is designed to cover the loss of income you might suffer as a result thereof. Without an income it is almost impossible to build long-term wealth, making an income protector a necessity in your overall portfolio.

  23. Make technology work for you
  24. Technology now makes it easier than ever to prepare a budget, track expenditure, put debt reduction strategies in place, monitor investment performance and manage bank accounts. Technological efficiency is key to good financial fitness, so find the apps and online facilities that cater to your needs and make them work for you.

  25. Set up an emergency fund
  26. Having an easily accessible ‘rainy day’ fund is another sure sign of financial health. If you don’t have an emergency fund equivalent to three months’ income, start working now towards achieving this.

  27. Educate yourself
  28. As with any training regime or sport, it helps to keep abreast of news, views and opinions as there is much we can learn from other people’s experiences and know-how.

  29. Reward yourself
  30. Even professional athletes have rest days and periods without training – in fact, rest days can be just as important as training days. Be intentional about building ‘fun money’ into your budget and allow yourself luxuries along the way. To stay motivated on your financial journey, you need time away from your finances to enjoy the fruits of your labour.

ADVISOR PROFILE

Eric Jordaan

Crue Invest (Pty) Ltd

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