We have all heard economists warn of “tough economic times”, in preparation for which consumers must “tighten their belts”.
But for the over-indebted, whose belts are already pulled as tight as can be, the rising cost of living is an extra strain that puts them on the precipice of financial ruin.
The challenge always is knowing the difference between what you want and what you need, and living within your means.
The following habits can be used as the basic structures of smarter money management:
- Know how much you make and how much you spend
- Keep track of your spending so that you are always aware of where your money is going. Drawing up a budget helps you identify areas where you are throwing money down the drain and areas in which you can cut down.
- Make savings and investments a priority when you draw up a budget. These should be way up there with your rent or bond payments, insurance and medical aid.
- Spend less than you earn and save the difference:
- This means that you should live below your means, and try to save (invest) as much as possible.
- Have an emergency fund and keep a close eye on it. Get life cover, draw up a will. Start thinking about retirement now. Do not leave anything to chance; be prepared because you do not know what might happen tomorrow.
- Take good care of any credit accounts you have. Always pay your balance in full, do not max out your credit cards, and never use debt to pay off other debt. Try to save for items instead of turning to credit. If you are struggling to manage your debt, stop taking on more credit.
- Write down your financial goals and review them regularly. Whether you want to travel, buy a car, or are saving for a deposit on a house, always record what you want to achieve. The goal may not necessarily be a financial one, but realising it may hinge on your financial planning. Either way, having goals you can review regularly will keep you focused and on track.
- Always take the long view. Do not fall prey to get-rich-quick schemes. Make it your business to understand how wealth is created. Whenever you have money to save or invest, think long term.
Sticking to healthy money habits is difficult but not impossible.
Make it your business to understand money. The more you understand it, the better you will be able to use it to your benefit. The business of money does not have to be complicated or scary. A little education will go a long way.
For the overindebted, saving and investing might take a back seat as it is a struggle to keep up with monthly commitments. The following tips may help you stay afloat:
- Face your debt: Avoid paying ridiculous amounts in interest by sticking to your monthly payments.
- Speak to your creditors: If you are unable to make the agreed payments then negotiate the amount you can pay before your account is in the red. You will also avoid having your account handed over to a debt collection firm.
- If your account has been handed over: Negotiate payment terms before you attract more administrative costs and interest than necessary. Avoid being hounded and charged for it too.
- Get professional help: The National Credit Regulator is available to assist you with debt counselling should you find yourself unable to cope with the amount of debt you have. This process will have a massive effect on your access to credit and should be the very last resort.