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5 steps to financial independence in 2018

Controlling your finances is possible in a time of financial uncertainty.

Have you made your New Year’s resolutions? You might have already dusted off some of those perennial favourites: lose weight, drink less, travel more, etc. But what about resolutions for your wealth? Just as “lose 10kgs by visiting the gym twice per week” is a better goal than “get fit”, setting specific, measurable goals for your finances is an important step in achieving them.

Firstly, before you look forward, look back at what you got right in 2017 and where you could make some progress. At Luthuli Capital we recommend assessing which financial goals you did (or didn’t) hit in 2017. Review your financial progress over the last year. Are you particularly proud of one or two achievements? Do you wish you could go back and consider any decisions over again? Take a balanced look at your experiences and be frank with yourself about your financial situation and how you got here. Make sure your financial habits correspond to the rest of your lifestyle aspirations. Celebrate your wins, then make a concrete plan to improve the areas where you fell short.

If you’re unsure on what to focus on beyond spend-less-save-more, look at what you can control. There’s a lot we can’t control when it comes to money — from rising interest rates to new tax laws and stock market fluctuations. While it’s important to understand what’s going on, don’t obsess over things you can’t do anything about. Instead, turn your attention to things you can control — like creating a budget that works or paying down debt quickly.

Define your Objectives – The SMART model is an effective guide for defining objectives that are:

  • Specific – so that you know exactly what you are aiming for and how you are going to get there;
  • Measurable – enabling you to keep track of your progress and assess how closely you have really met your goal;
  • Achievable – so that you can take on the challenge with confidence and not become overwhelmed by a task that is too ambitious;
  • Relevant – it is easy to come up with an array of good, creative objectives in a free brainstorm, but all of them may not get you to your desired end goal; and
  • Time-bound – deadlines place healthy pressure on you to succeed.

Let these 5 money-saving tips guide your resolutions to make 2018 a financial game changer:

    1. Do you know your financial self?

Have you recently undergone a significant life change, such as having a child? Are you, for instance, expecting to retire in the coming year? Ask yourself some of these questions:

Income

    1. – How much did you make last year, and do you expect that amount to grow? Moreover, can you realistically help it grow?

Expenses

    1. – How much did you spend last year? Did you have unusual expenses? Are your expenses trending in any direction? Do you have a monthly

budget

    1. ? (If not, you should.) Are your retirement savings included in your regular budget? How much cash do you keep for emergencies, and how much do you need? (Six months of expenses is a typical goal).

Assets

    1. – What are your assets and investments, what is their current value, and what portion is liquid? What are some plausible scenarios for investment returns during the year? And are you making maximum use of tax-advantaged investments like a retirement annuity or tax-free saving account? Finally, is your portfolio in need of rebalancing because of changes in your life (such as nearing retirement) or changes in the financial markets?

Debts and credit

    1. – Do you have upcoming future debts (like paying a tertiary education whilst we figure out how “free” education will be implemented in SA) and have you planned for them? Do you have outstanding loans aside from a home-loan? What is your average credit card debt, and do you pay it off regularly? What is your credit score? You can check your credit score and read your credit report for free online within minutes.

Insurance

    1. – Do you have the proper coverage for your family and possessions? Are your premiums reasonable for the coverage you have, or can you negotiate a better deal?

There’s so much you can do including cancelling unused memberships or subscriptions, finding discounts by bundling services or just switching all your bills to online bill payment methods. If you don’t know the answer to these questions or what to do, start with the simple goal of finding them out. This is an important part of setting realistic goals. Don’t be surprised if you redefine or sharpen your goals after performing this exercise.

    1. Consolidate your debt

Carrying multiple balances, especially at varying interest rates, can feel like death by a thousand paper cuts when your bills come in the mail. If one of your goals is to get your debt under control in 2018, consolidating that debt might be the answer. Debt consolidation means moving all or much of your debt to one place, so that you can experience the joys of having only one interest rate, one minimum payment, and one repayment term. You can do this by taking out a line of credit, personal loan, or credit card and using it to pay off all your existing balances.

Not only will credit consolidation alleviate the headache of managing multiple different payments, it can also reduce the carrying cost of your debt and even get you out of debt faster. If some or all the debt you’re carrying is high-interest credit card debt, you’ll likely be able to reduce the interest you’re paying each month by moving this debt to a low-interest line of credit or personal loan.

    1. Start investing

If you really want to start the New Year off right, take your first steps to accomplishing something big with your money. This can be anything from saving up a down-payment for your first home or finally starting a retirement annuity. Whatever your goal, make sure you know exactly what you’re saving for and the specific rand amount you need. Once you know your money wish and its price tag, it’s time to plan your investment strategy. This might be the year you finally make good on your promise to yourself.

Once you know what you’re saving for and how much you’ll need, open a dedicated investment account and start saving right away. Bonus points if you open the account with a financial institution other than your primary bank, so you don’t see the cash and are tempted to spend it every time you log into your online banking. To give your goal an extra boost, don’t wait until your first salary payment end of Januworry to start saving. Even if you only have a few hundred rand to spare right now, deposit it in your new investment account to give your goal some momentum!

    1. Schedule NO-SPENDING weekends

With the excitement of the New Year, you may be tempted to make extreme changes to your lifestyle. Don’t set yourself up for failure by trying to alter your saving and spending habits drastically. Start small and build from there. Consider detoxing your finances with a sending cleanse. Try a “no-spend” weekend. All too often, we devote our weekends to spending. Instead, look for free events and outings in your neighbourhood — or double up and make your ‘no-spend weekend’ a ‘to-do list weekend,’ where you finish all those chores you’ve been putting off.

    1. Talk to your Children

One in three parents never talks to their children about key financial issues such as savings and retirement, while two thirds have never spoken about their inheritance. That is a shocking stat and partly answers why we’re so bad at not only creating wealth, while also passing on these habits to future generations. South Africans have always found money an awkward topic but the sooner you start having these conversations, the better placed your children will be to handle issues such as student debt, saving for a property deposit or retirement.

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WHAT HAPPENS WHEN THEY GET THE CONSOLIDATION LOAN and then CONTINUE TO USE THE CREDIT CARDS?? SOME PARENTS DO TALK WITH THEIR CHILDREN however MOST KIDS ARE INTO BLING, CARS, GIRLS, SCHOOL. They have no interest in learning about money that is so easily handed to them on almost a daily basis.
They need Financial Fitness !!!!Who’s teaching them the parents?? With their home Bond, Car loans, credit cards, store accounts and overdraft?? Is this a case of do what I say and not what I do??

I think your caps lock button is broken.

And please, if your parents had a talk to you about finance at the age of 12 or 13, would you even really listen?

It’s a challenge to instill sensible money management in children, especially if they have grown up in a financially-comfortable environment. It is easy for them to believe in the magic money tree, and many parents effectively encourage this belief, whether intentionally or not.

I think kids should be trained for years starting with fixed pocket money before 10 years old and kids should have no random cash gifts from their folks. They should learn to save, budget and plan from well before their teens.

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