How many of us have fantasised over winning the lottery and the kind of life those millions would buy us? Unfortunately, the majority of us have to work (very hard) for our money. “Why has no one invented seeds that would make money trees a reality?”, you probably ask yourself when those debit orders eat away at your bank balance. Most of us, sadly, believe that more money is the answer to an easier, happier and stress-free life.
Though more money may be helpful in the short term, it will not address the underlying issues in the long run if not managed well. And this reason is exactly why many lottery winners end up with no money after just a few months or years! Remember: Good, consistent money management creates financial freedom.
“Money is extremely emotive, it makes us feel many different emotions like shame, guilt, anger and happiness. Most of the unconscious beliefs and emotions we develop around money – the way we think, feel and behave around money – are set up during childhood. That is why it is so important that parents create good money habits. Your emotions around money and how you deal with it affect your children’s future spending – and saving,” says Nicky Edwards, programme lead at Reskill, an initiative by the company Taking Care of Business (TCB) that has been training people on how to manage their money successfully through their Me and My Money course.
Edwards, who has trained over 2000 unemployed mothers on essential money skills, reiterates that children learn their life-long money habits from their parents.
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Below are some practical changes that you can implement a.s.a.p. to start your journey to financial freedom and ensure that your kids learn from your good example. `
1. Don’t bury your head in the sand…
…That definitely won’t make your money woes vanish. Avoided, bad money habits can negatively impact yours and your children’s futures. “Money problems and growing debt can be overwhelming and make you feel sick and stressed,” says Edwards. “However, running away from your money problems or trying to ignore them only makes matters worse.”
Don’t feel like facing your past money mistakes head on? “The first step to becoming financially free is facing the truth. It is only when we face up to our current money situation that we can start dealing with it. Facing the truth is the start of your journey to financial freedom,” says Edwards.
“Always remember that you are not alone when it comes to money challenges and stresses,” she says. “You’ll be surprised by how many people look wealthy but have mountains of debt and a lot of stress because of it.”
2. What are you spending your money on?
To understand exactly what’s eating away at your money, commit to writing down every cent you spend for three months, advises Edwards. “It doesn’t matter how small the amount is, write it down. We often believe that we don’t spend very much on small luxuries like cigarettes, fizzy drinks, sweets and impulsive (or unplanned) buying. By writing down everything you spend on, you are likely to be surprised by how much of your money goes towards unnecessary expenses,” she says.
Edwards recommends keeping a small booklet and a pen in your handbag to jot down everything you buy as you go about your day. “If you make the effort to record all your expenses over three months, you will have a very good idea of what you spend your money on, this is the first step towards drawing up an accurate budget,” she says.
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3. Make a monthly budget and stick to it
“Now that you know what you spend your money on, you need to draw up a budget with all your monthly expenses,” says Edwards. Without a monthly budget, we may as well be walking around with blindfolds, she adds.
“Understanding what we do with our money is the beginning of really seeing our financial truth. When you draw up your budget, start by deciding what you need to spend money on, e.g. housing, groceries, utilities, transport – rather than what you like buying,” says Edwards. “Make a list of all your monthly expenditure needs, don’t forget to add your debt repayments to this list.
4. Add your annual and unexpected costs, plus savings, to your budget
Once you’ve tallied up all your monthly expenses, add your yearly expenses to the mix. These may be costs that you only pay once or twice a year, e.g. school fees, school uniforms, car license and birthday expenses. “Then add a list of unexpected expenses, random things that could happen during the year such as a funeral or needing to replace a cell phone or a traffic fine. Once you have your annual and unexpected costs written down, add these costs up and divide them by 12 so you know how much to budget for them each month,” says Edwards.
“Your short-term savings are these unexpected and annual amounts you have added to your monthly expenses. However, you should have medium- and long-term savings too. You should aim to have three to six months’ worth of expenditure as savings. Work out how much you need to save to have this amount and divide it by 12 to find out how much to put towards savings each month. You can save through a stokvel or using a fixed deposit bank account,” advises Edwards.
Then, add your annual, unexpected and savings amounts to your monthly budget. Work your total budget so that it is structured something like 50% needs (food, housing, water and electricity), 20% wants (entertainment, eating out) and 30% savings (retirement, emergency fund, funerals/weddings).
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5. Learn to say ‘no’
Sticking to this boundary may seem overwhelming at first but it definitely can be done. “Firstly, set boundaries with friends and family who may want you to lend them money or buy things for them. Learn to say no and think of yourself and your children – and take responsibility for your immediate family’s future first,” says Edwards, adding that it’s important to also learn how to say ‘no’ to yourself. “Don’t buy things to impress your friends. Stop caring about what others think of you and start making good choices for yourself and your kids,” she says.
Also beware of emotional spending, a psychological phenomenon where one spends money on unnecessary things to make themselves feel better. Lastly, you will need to be patient with this process – no shortcuts and quick fixes here! “Financial freedom takes time and commitment. If you stick to your budget and your plans, saving will come naturally,” she says. And when your children witness you implement these good money habits in your home, they’ll have them imprinted on their little brains for future use.
