You need to earn a lot to be well-off, right? Not so. Wealth is as much about controlling debt and spending as it is about income. If you earn a moderate salary and are free of short-term debt then you’re probably in a better financial position than someone who earns more, but spends it all on serving short-term debt.
Essentially, good money habits boil down to three simplified points. Spend less than you earn and invest the difference. Pay off your credit cards in full each month. Don't buy things you don't need.
With increasing fuel and food costs and the rand in a state of flux there may be a temptation to get into debt by making day-to-day purchases on credit, but it’s at times like these when minimising your debt should be your priority.
Sadly, a very small percentage of South Africans are completely debt-free.
Habits form the very first time you make a decision to do something, whether it's charging to your credit card or deciding to stay in rather than dine out. You need to break bad habits that get in the way of financial stability and establish new, healthy money habits.
Here are five healthy money habits to implement right now to start a better debt-free life:
- Review your debts and make a conscious decision to pay off the most expensive debt first. This is not necessarily the largest amount outstanding but rather the accounts that charge the highest interest rates, such as high interest-bearing credit cards and store cards. Consolidating all your debts with one single loan that pays off all your debts is another possible option to clear your counters.
- Avoid accumulating more debt: pay for your purchases with a debit card or cash, rather than a credit card. Discipline is key.
- If you receive an annual bonus or any other unexpected windfall, contribute part of this towards reducing your home loan or car finance, as this will reduce the amount of interest you pay overall on these longer term loans.
- Set aside a portion of your bonus for investment over the long term, like a tax-deductible retirement annuity or an endowment fund. Also make sure you consider the various tax-free savings options that offer you your full investment return without being taxed on any of the growth you have earned.
- List your unavoidable commitments in 2016: school fees, medical bills, inflation-adjusted insurance premiums, car services – and ensure you set aside enough to handle those expenses without financial anxiety.
It is better to assess and discuss your impending difficulties than to ignore the problem or wait for creditors to call you wanting to know when you are going to pay back their money.
Need an assessment? That’s why I’m here. Let’s get in touch!