John Vaughan (Financial Advisor) @ Lucid Living
“Success does not come to you, you go to it”. In this instalment we reveal a practical and effective 10-step formula to financial success:
1. Review your credit report – Much of your financial future depends on the contents of your credit report. Therefore, your first step should be to obtain your report, review it for accuracy and dispute any errors. While you can access your credit report for free, from anyone of the 11 registered credit bureaus – if you have already tried, you will know that this can be a rather cumbersome and often frustrating process. Alternatively you can access your credit report off our website: http://www.lucidliving.co.za/credit-report/Pulse_signup_A/
2. Reduce debt – 47% of credit active South Africans have defaulted on their monthly instalments for more than 3 months. If you’ve dug a deep financial hole, stop digging. Piling new debt on top of old is a red flag that you are living beyond your means. Lock up the credit cards until they’re paid in full, and meanwhile, reach out for help from a debt counsellor. Delaying only makes the problem worse.
3. Commit to save – South Africans are notoriously poor savers. On average we use 78% of our income to service debt. Without a well-funded savings account, you are on a very slippery slope, one that becomes treacherous with the next unplanned expense. Put 10 percent of each take-home check into a savings account. Find extra money to dedicate to saving by putting all raises, bonuses, birthday checks, and any other windfall monies into savings. This will create a cushion that should see you through most short-term emergencies.
4. Avoid incurring late fees – Pay your bills on or before the date they are due. This way you’ll never risk the creditor receiving your payment late. Delaying could result in you being charged a late fee, a ding to your credit report and a lower credit score. The risk of delay is simply too great. If you are not disciplined or just forgetful, consider debit orders or setting up future dated payments with online banking.
5. Avoid paying overdraft fees – An overdraft facility, if you have one, attracts a higher interest rate (usually prime plus). You should therefore avoid using this unless absolutely necessary. When you do dip into this dangerous territory, aim to pay if off as quickly as possible.
6. Track your spending for 30 days – Have everyone in the household who spends money participate in this exercise. Write down every cent that is spent, as it’s the small, miscellaneous expenses that often wreck the best of plans. At the end of the month, come together to review the spending. This is the only way you can truly know where your hard-earned money is going.
7. Create a spending plan you can live with – Once you’ve tracked your spending, you can then make conscious decisions as to how you want to allocate the money. Continue tracking with the new plan in place. Keep doing so until you find a plan that is right for your family. Make it too strict, and no one will stay on board. Make it too lenient and you won’t be accomplishing anything.
8. Get financially organized – Create your own personal financial center where you can instantly put your hands on your family’s financial records. You need to know where everything is. Place original documents such as a will or your home deeds certificate in a safe deposit box, and keep a copy at home.
9. Take advantage of free money – Contribute the maximum amount to your retirement plan at work, or at the very least, meet the matched amount or you’re throwing away free money. Maximise avenues that lower your taxable income.
10. Have an annual insurance check-up – No one wants to be over-insured. Nor do you want to be under-insured resulting in an unpleasant surprise when making a claim. Make an appointment with your provider and confirm that your coverage is exactly what you thought you were paying for. Inquire about ways to lower your premiums, and ask about any discounts for loyalty, good driving and the bundling of multiple polices.