October is Financial Planning Month – use it as an opportunity to see if you could be doing better on the financial front, and looking at ways to improve.
This month, family financial experts Hero Life answer the questions their clients often ask about financial planning, plus how to get started and make the best of it.
October is Financial Planning Month. I aim to get started sorting things out in the new year. Why should I do anything now?
Although there’s really nothing special to October, it’s a great reminder to take a few small steps to help improve your financial health and make better money management decisions going forward. With the holiday season approaching and the upcoming expenses associated with this time of year, there’s no better time than now to get your finances in order.
How do I get started with my financial planning?
You can start with six easy steps. And remember, if at any time you feel you need a bit of push, there are always professionals available to give you a hand.
Step 1: Take a financial inventory (your ‘original’ so to speak). This is to see how much you earn, what you spend, your debt situation, your life cover situation as well as savings and retirement. Just listing everything you currently have in place.
Step 2: Think about what you want to achieve financially and what those goals are (your destination). These could be things like buying a house in five years, or going on an overseas holiday. Or maybe you just want to be financially independent without any debt 10 years from now.
Step 3: Create a budget that will allow you to reach your goals (the map showing you how to go from your origin to your end destination). Commit to reducing your spending and increasing your income.!
Step 4: Categorise your goals and fund these goals with any surplus you have left after your monthly essential living costs. These could be paying off debt sooner, putting more money away for retirement or even just something as simple as starting an emergency fund.
Step 5: Look at ways of increasing your income or decreasing your expenses to allow for extra surplus every month to fund the goals you have set for yourself.
Step 6: Take a moment and celebrate your progress!
Beginner financial planning really comes down to just a few basic steps – earn more, spend less and save in a way that aligns with your financial goals.
And remember, if at any time you feel you need guidance, there are always experts available to give you advice.
Why is a budget so important when it comes to financial planning?
It’s boring and admin-heavy, but by figuring out your fixed and variable expenses, and looking at your bank statements, you’ll see exactly where your money is going which will help you make smart decisions on what you could cut out of your life. You’ll likely find you’re spending money on things you don’t really need, or you’ll see opportunities where you could be paying less for something.
You could also try the 50-20-30 budget method: 50% of your net income should go towards your needs, 30% towards your wants, and 20% to your savings and debt repayments.
I have kids, so I feel it might be more important to budget and save. Is this correct, even though I have more responsibilities?
Absolutely – it’s very important, no matter your expenses or number of dependents.
We know that the concept of saving sounds easy, but in practise it’s tough out there, especially when there are always living expenses and new ones coming up, especially when you have children. You need to find ways to save that make sense – whether it’s setting up a debit order on your bank account for a savings plan, only eating takeaways once a month, only buying clothes on sale, scouring supermarkets for grocery specials, or packing lunch to take to work.
The key to changing spending behaviour is to create a goal and start small. Begin by switching off lights when you don’t need them to save electricity, or waiting a while before buying those shoes, or limiting yourself to one impulse buy a month. You could save hundreds of rands a month, which equates to thousands by the end of the year. This money can be saved for emergencies, help towards unforeseen expenses, or put towards education policies or increased life cover.
What else should be part of my financial plan?
Your financial plan should ideally cover every aspect of your finances: savings and investment, insurance (life, short-term and medical), managing debt, estate planning, tax planning and retirement planning.
For a parent, having a will, life insurance, and savings for their kids’ education is a critical part of a financial plan. You might think you’ll be able to afford your child’s university expenses from your monthly cash flow, or that you don’t need a will because you don’t have a lot of assets. You might also think that because you’re fairly young, you don’t need life insurance, or your kids will be provided for by their dad or your parents when you’re no longer there. This isn’t the case and there are many things to consider – your kids’ education, first cars, weddings and general wellbeing. You’ll be doing them and your partner a big disservice if you don’t plan properly to secure any dreams you have for them.
Once I have things in place, what next? Do I always need to change and re-evaluate things?
As they say, the only constant in life is change. Your life and circumstances are definitely going to change over the next 12 months. You might have another child, your expenses will have increased owing to inflation, or you might be living in a new house. You need to re-evaluate your financial plan every year to ensure you’re still on track to reach those financial goals you’ve set for yourself.
What is the ideal position for me to be in next October, when it’s Financial Planning Month again?
As a parent, you should have some basics in place, such as a will, sufficient life cover, and a savings account and plan. These small things can go a very long way in securing your family’s future.