5 Top Financial Planning Tips To Use This Financial Year

by | Mar 14, 2023 | Career & Money

News flash: South Africa’s 2024 financial year started on the first of March. And a new financial year is exactly the perfect time to give your finances a complete makeover so you aren’t just making ends meet, but thriving. Here’s how to be financially fit in 2023 and beyond with these expert financial planning tips.

Why Should You Pay Attention To Your Finances?

Ask anyone who mapped out their finances for 2020 and few – except the soothsayers – would’ve accounted for a global pandemic. But this type of disaster is an important lesson when it comes to budgeting: you can’t predict the future, but you can at least build the biggest possible buffer between you and going bust. Here’s exactly how, according to experts.

Step 1: Start Budgeting

“Budgeting is the cornerstone of any financial plan,” says Simone Sharman, the national head of business development at Truffle Asset Management. “To save more, you either need to spend less or earn more. The latter isn’t usually an option.”

Take A Long, Hard Look At Your Finances

The first step is figuring out where you are financially. And make sure you don’t pull any punches. Open up all your statements and tap them into a single spreadsheet (stick with us!). It’s laborious, but this overview will give you a clear idea of where you’re sitting and those hours spent craning over a laptop will pay dividends down the line.

“If you don’t know where your money is going, it’s nearly impossible to see where you can cut your expenses,” adds Sharman. “It can feel like your money just magically disappears unless you keep a close eye on it.”

READ MORE: This 4-Step Personal Finance Cheatsheet Is So Simple Anyone Can Use It

Categorise Your Expenses

Now, Sharman recommends splitting your expenses into two columns: necessary and discretionary. In other words, what are the non-negotiables – rent, car repayments, groceries – and what costs are non-essential – UberEats, that ninth pair of yoga pants or the subscription service you haven’t used since 2017. Column “B” is where you can start cutting and it’s “amazing” how many costs you can nix from your monthly load when you’ve got a bird’s eye view of your financial situation, says Sharman.

If, however, looking at that spreadsheet starts to feel like staring into the abyss – i.e., you’ve got a mountain of debts that seem insurmountable – it might be worth speaking to a Certified Financial Planner, suggest Sharman: “Just make sure you start taking stock now, because the sooner you begin, the sooner you’ll finish and the more you will save.”

Cut Back On Your Expenses

You might think cutting down on luxuries will tank your mood, but research has shown the exact opposite. A study published by Emerald Insight looked into the personal finance habits of 968 young adults. Participants answered a range of questions at various stages in their lives and were asked to provide updates on their mental health status. The results? Those who saved more reported a significant boost in their overall well-being. Additionally, those who were buying less were also less likely to note down any depressive symptoms. Time to load up Excel? We think so.

READ MORE: How To Save Money – And Why It Matters For Your Health

Step 2: Now Invest

“Investments can be extremely intimidating,” says Geo Botha, director and wealth manager at Bovest. And that daunting prospect becomes completely overwhelming when you factor in poor market performance and the constant threat of another looming recession. While many people are going the DIY route – think EasyEquities – picking your own stocks can feel more like guesswork than planning for your future.

“No surprise then that this often leads to bad performance because you really don’t have the expertise in this field to thrive,” adds Botha. “Then you get even more intimidated and pessimistic about investing.” There’s a reason the majority of us leave our money to stagnate in a low-interest bank account.

But there is a solution: you need to have a goal and a structured plan to get there.

Keep It Simple

Sharman suggests keeping it simple. “Aim to save at least 20% of your gross income every month from your very first salary. If you can’t manage the full 20%, start with whatever is manageable and build up from there,” she says.

After all, most investment platforms let you start with as little as R150 per month.

Consider A Unit Trust Fund

When choosing investments, a decent equity or balanced unit trust should net you 10% per year in the long run. Unit trust funds pool money from multiple investors to give you the leverage to get into bonds, shares, you name it. This pool is then divided up into equal portions known as units that increase or decrease in value based on the fund’s performance. Not only do unit trust funds have high liquidity – you won’t have to wait months to get hold of your money in the event of an emergency – but the initial investment is relatively low.

“So if you invest R250 per month for the next ten years with a 10% return, your investment should be worth more than R50 000,” says Sharman. “Alternatively, you could buy a new top for R500 every second month and end up with 60 tops after ten years, most of which are out of fashion and worth nothing.”

READ MORE: Money & Friends: 6 Awkward Situations And How To Handle Them

Step 3: Plan for Emergencies

Even the best-laid plans are little match for a serious emergency. That’s why, if you want your budgeting to reach bulletproof proportions, you’ll have to account for the worst. Ryan McCaughey, a director at Hewett Wealth and the Financial Planning Institute (FPI) 2021 Financial Planner of the Year, suggests creating an emergency savings account that’s robust enough to weather any storm – even Covid 2.0. 

“Make sure your account can cater for two to three months of your living expenses,” he says. “Any excess funds can be redeployed into your investments.”

The type of account you’re using also matters; he recommends choosing one offering a competitive interest rate (minus the fees) and a short notice or next-day withdrawal. Even a one-week notice period could leave you stranded as emergencies typically require cash on the fly. “No emergency is going to wait that long,” adds Botha.

READ MORE: Struggling To Talk To Your Partner About Money? Try This Money Coach’s Helpful Hack

Step 4: Learn Better Habits

A rock-solid financial plan is only part one in your pursuit of wealth that lasts. The right habits can keep you out of the red, too. Here are a few you should add to your repertoire in the new financial year:

Start Small

Big sweeping changes are unlikely to stick. A 2007 survey by British Psychologist Richard Wiseman found that 88% of people failed to stick to their New Year’s Resolutions. While it might be an overwhelming task to scrap takeaways entirely from your weekly menu, skipping them once a week in favour of wallet-friendly home-cooked fare could one day help you achieve the UberEats-free lifestyle.

Automate Your Investments

Botha is a big advocate for putting your investments on debit order. While this will take some of the oomph out of payday, it’ll also teach you how to get by with less.

Take A Deep Breath

“In times of uncertainty, we tend to fixate on all the negatives and short-term news,” says McCaughey. “In most situations, this type of behaviour causes you to make emotional decisions that just aren’t the right call.” He suggests taking a deep breath and getting practical. That might mean sticking to your financial plan or roping in an expert who can help you see things clearly. 

Pay Off Your Debts

McCaughey suggests setting your sights on short-term loans such as your car loan and credit card debts as these tend to attract higher interest rates. This approach takes notes from Dave Ramsey’s “Snowball Method”, a plan that focuses on tackling the smallest debts first and working upwards. Research has shown that this method can give you a sense of progress, giving you a momentum boost even when you’re under a mountain of debt.

Step 5: Employ Our Budget Planner

We’re not leaving you high and dry here, we created this downloadable PDF monthly budget to help you apply these financial planning tips with ease.

*Words By: Kieran Legg

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