John Vaughan (Financial Advisor @ Lucid Living)
Financial independence is achievable. All you need is good advice and discipline.
We have provided the advice, to set you on the right path.
Its up to you, to start the journey and have the discipline to stay the course.
Debt is an obstacle
The biggest stumbeling block to financial independence is excess debt. If you spend more than you earn and get into debt, you’re working for the banks. That’s pretty standard advice, although most of us don’t know how to avoid this trap.
Like all obstacles in your path – it needs to be removed, for you to progress. First, get to the point where a bank is paying you to use credit. Use reward cards (they give you cash rewards, airline miles or other benefits) and pay them off by their due date. Don’t carry over any balances. If you can’t afford something (come end of the month), don’t buy it. Don’t take out equity from your home loan to fund your wanton desires – its not worth it.
Having a home loan is not bad — it’s always been called “good” debt. But the sooner you can pay it off, the better.
If you’ve paid off your motor car – do you really have to buy a new one? That’s thousands of rands you could be saving.
What can you do without?
Unfortunately, most of us want it all now – thanks to readily available credit. Instead of accessing expensive credit, save up to pay cash for the things you really want.
Can you live without DSTV? Dump it and save the difference. How about that gym membership – that you never use? Go without that R20 morning cup of coffee or that R45 daily lunch. Bank the savings. Make it your motto to “save first, spend later.”
Check your medical aid, home or car insurance instalments. There is always a better deal that can save you hundreds of rand a month.
As for life insurance, unless you have dependents who would be financially hurt if you pass, consider whether you really need it. The insurance companies scare you into believing that you do – but you need to think for yourself. Disability insurance is a good idea. You have a greater chance of being disabled than dying during your working career.
Newer, better, smarter cellphones get launched every month. Do you really need to tie yourself into another 24 month contract – just to get a new cellphone? It doesn’t make any sense!
Fill up your savings account – to take care of emergencies, rainy days and your retirement.
You’ve probably seen suggestions that saving 10% to 15% of your annual income will lead to a comfortable retirement. But if you can save more – why not do it? Start with a goal of saving one-third of your income. Speak to a reputable and trusted financial advisor to get advice on the most tax efficient way to save/invest that money. Use every opportunity you can to save with tax efficient instruments. No amount is too small with the power of compound interest and smart investments.
Small fees add up
We often under-estimate how much we lose on the hidden or small fees. Brokerage fees, commissions and middlemen expenses eats up your wealth in a big way.
Many insurers have launched “direct channels” – which they claim can save you as much as 20% on your monthly insurance premiums. Banks now offer online share trading, which allows you to invest in the JSE, without the use of expensive brokers and fund managers. Avoid any broker-sold product. Buy direct.
Check you bank statement and make sure you are not paying invalid fees and charges. Avoid penalty fees for failed debit orders and bad cheques – these are ridiculously expensive. What looks like a small amount on your statement can eat up your savings over time. Costs matter. The less you have to pay — whether it’s in fund fees, banking charges, commissions or interest — the better.
It’s not about numbers, it’s about your life
I’m sick of self-serving surveys of how poorly people are saving for retirement. They are usually published by the same companies who want to gouge you to invest in their “retirement” products. Find out how much it would take for you to live comfortably and put away enough money to get there. Develop a dynamic lifetime financial plan that changes with each phase of life.