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Tip: Taking charge of your finances

Too often, we become complacent about our personal finances and as a result, we miss out on the long-term benefits. Growing your wealth and reaching that goal of endless passive income is a tough task and requires a very particular approach to your finances. It’s an approach that very few adapt mainly because Personal Finance isn’t taught at school level and if you don’t end up studying finance at a tertiary level, you are left pretty clueless on the subject. As a result, very few South Africans ever reach that end goal of financial freedom.

In this article, I will not be focusing on where to invest or how to invest, but rather on the approach or the attitude that you need to apply to your own personal finances. Here are three tips that will help you approach your personal finances in a more financially savvy manner.

Don’t save. Invest

My bank balance usually ends up on around R0 at the end of the month. This is because I never save money in my bank account where it would earn 3%. I keep only enough for my monthly expenses; the rest gets invested, where it earns 11%. If an emergency arises, I use my overdraft facility or I make a withdrawal from my flexible investment plan. Ideally, this is the approach you must apply.

If it was possible, you would want to have a credit card attached to your investment plan and for all your money to be in the investment plan. Then any money you don’t spend will be earning 11% rather than 3%. Since this is not possible, try get as close to it as possible. Over the years, the compound effect of this will be massive. For example, if you save R2000 a month for 20 years in a savings account that earns 3%, you will have R656,604 at the end of 20 years. If you invest R2000 a month and earn 11%, you will have R1,731,276 at the end of 20 years. That’s more than a million rand difference. The benefits are not immediate which is why people don’t realise the long-term impact this decision can have on their financial well- being. I can’t make you wealthy overnight. I most definitely can make you wealthy over 20 years. In South Africa, we live with inflation. If you are saving your money in a savings account, e.g. 32-day account, your money is losing value. This is why, in order to grow your wealth, it is essential to invest as much of your money as you can and earn inflation-beating returns.

Scrutinise your bank statement

Go through your bank statement every month and look for ways to reduce your expenses or reduce those debit orders. Maybe you are a member of a rewards program and are barely making use of it. Perhaps you have insurance or investment policies that you took out years ago and the debit orders have been going off ever since. Contact a Financial Planner to review these policies and to determine whether they are necessary or not. And have you been reviewing your car insurance premiums every year? The majority of us don’t. Your car depreciates every year. So call the insurance company and reduce the cover so that your premium gets lowered.

Once you take on the financially-savvy approach and reduce those expenses, what do you do with the extra money? Take half of it and spoil yourself or your loved ones. Take the other half and invest it.

Stay away from high-interest clothing/retail accounts

Try your utmost best to NOT purchase anything on credit if the interest rate is high which in most cases, it is. I won’t use figures and get technical but take my word for it – high-interest debt is putting a wall between you and financial freedom. If you do already have these accounts, try pay them off as soon as possible. And don’t bother investing your money until you finish paying off the accounts because the interest you earn on an investment will rarely be as high as the interest you pay on these accounts.

Munaf Mukadam

Certified Financial Planner

munaf.mukadam@liblink.co.za / 074 589 6489

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