June 26, 2024
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Let me ask you some questions: do you know what your net worth will be in 5 years time? Do you know how much you will need to survive on if you lost your job today? Do you know what your dream wedding will cost? Do you know the exact date on which you will pay off your debt?
The answer to this question is easy; proper financial planning; proper financial planning. Let’s break down what financial planning is all about. Often times, people get intimidated by the words ‘financial planning’ thinking that it’s only meant for people with a lot of money or people who seemingly have their financial lives in check.
For example, if you were to look at your bank statement ~ preferably your 3-month bank statement, you will see a pattern or some behaviours around your money.
Without proper financial planning, you will often say statements like “I had money in my account but now it’s all gone and I don’t know how this happens all the time”.
To plan your finances, start at the beginning:
This is important because you need to know exactly how much your gross income vs. your net income is. Your net income is what comes into your bank account while gross income is your income before deductions such as pension fund, medical aid, tax etc.
Your net income is the number you will use when you are drawing up your budget – which it the cornerstone of a healthy financial life.
As I mentioned earlier, looking through your bank statements provides you with a clear picture of what you have prioritized in the past. It gives you a snapshot into your money personality. Are you a spender or a saver for example. Money leaves clues everywhere, and the easiest way to find out is to look through your bank statement.
A budget gives you an accurate picture of what is coming and going out of your bank account. A budget does not need to be complicated; it is simply your net income less your expenses. If at the end of your calculation you end up with a minus, it means you are living beyond your means and you are possibly financing your lifestyle through credit.
Drawing a budget helps you track your expenses and gives you control of where you want your money to go.
Joe Biden once said, “don’t tell me what you value, show me your budget, and I’ll tell you what you value.” Think about this for a moment and ask yourself if your current budget reflects what you want to do with your money?
You can simply download a budget template here to get you started on your journey.
Your budget is not a once-off exercise you do at the beginning of January, it is something you regularly visit and tweak to fit the outcome you desire for your finances.
This means that you need to track your expenses and you can do this through an app like 22seven where you can securely link your bank accounts and other investments. What I personally love about the app is that I can set limits for different categories, if you get close to your limit, let’s say on eating out or entertainment (I admit eating out is my vice!), you will get a nudge that you are about to reach your limit.
Also, use your rewards programmes to get discounts for expenses that are already in your budget. For example, with Old Mutual Rewards, anyone can join the programme, you don’t have to be an Old Mutual customer. I personally like Rewards programmes that give me an option to save and invest instead of just spending. Check it out by going to Old Mutual Rewards
Tribe, I cannot say it enough; if you do not consciously plan your finances, your finances will always control you. If you take care of your money, it will take care of you when you need it most.
I know sometimes the topic of money can feel overwhelming but you can speak to a financial adviser who can help you navigate your finances and help you gain clarity of your financial future.
Tribe, what are some of your top budgeting tips that work all the time?
#personalfinance #moneytips
