January is the time for reform and new beginnings, but there are eleven more months that follow, where self-dicipline falters and all those firm resolutions fall by the wayside.
According to Marilize Putter, Dean of Financial Planning & Insurance at Milpark Education, most people do not have the staying power to see their financial resolutions through.
"Most South Africans discard their new year’s financial resolutions, budgets and saving plans as soon as the realities of festive overspending reappear as debt," says Putter.
To prevent that, Putter suggests following a 12-month plan, which outline specific month-by-month tasks that are easy to accomplish and give you more control over your money.
January: Touch base and determine your spending plan
It is important to first establish the base from which you are working. What is your current assets and liabilities? Do you own any assets from which you can generate income?
What is your monthly income and how do you spend that income? Distinguish between fixed expenses (such as rent, bond repayments and medical aid contributions) and variable expenses (such as food and entertainment).
Identify areas where you over-spend and expenses that you can cut out.
Draft a spending plan for the rest of the year and share this with your partner or family. Identify an amount that you will put away every month to start saving for the December holidays and all the back-to-school expenses thereafter.
Keep track of your spending at the end of every month.
February: Slim down on debt
Many of us are over-indebted due to status-driven spending patterns. Considering the current interest rate and the long-term forecast of further increases, it may be more beneficial to first pay off debt before saving.
Identify debt with high interest rates, such as short-term personal loans and credit cards. Contact your bank to find out if you cannot consolidate your debt in order to pay a lower interest rate.
Additional payments towards the debt with the highest interest rate will also help you to save money as you will spend less on repaying the interest portion of the debt.
March: Make an appointment with a certified financial planner (CFP®)
Financial planners need to meet stringent qualification and competency requirements in order to obtain the internationally recognised CFP® designation.
A CFP® professional will be able to draft a comprehensive financial plan for you and will be able to assist you with clarifying your financial priorities.
April: Review your spending plan
By this time of the year, we have experienced unexpected school expenses for the children, as well as some of the usual events such as public and school holidays, birthdays, etc.
Revisit your spending plan and make the necessary adjustments. Also continue keeping track of your spending at the end of every month by identifying unnecessary expenses.
May: Review your last will and testament
When last did your update your will? Having an outdated will (or even worse, no will at all) will inconvenience your loved ones when they need to be able to grieve.
It is therefore important that you visit your bank or contact a CFP® professional for guidance.
Regardless of your marital status or marital regime, if you are in a relationship or have minor children, you have to make sure that your will is up-to-date and kept in safe custody.
June: Consider your current insurance
Start with funeral cover. Ensure that you have some form of cover for every member in your family that will pay out within at least 48 hours.
If you have dependants, consider how you can make provision so that they can retain their current standard of living in the event of your death.
Bear in mind that they’ll have to do without the monthly income that you contribute to the household. How would their lifestyle be affected?
Do you have any debt that will need to be repaid? If so, they can significantly reduce what is left in your estate.
Disability insurance is an important consideration as this will provide you with some form of income should you become disabled.
There are other forms of cover that you can consider based on whether you are self-employed or the level of specialisation of your occupation.
Before you take out new insurance, first establish what you currently have. Gather all your policy information. Add any group cover that you may have at work.
Remember to add all the small amounts which we have with retailers or banks. Ask your CFP® professional to help you to consolidate the cover and to recommend the most suitable options.
July: Retirement planning
Irrespective of whether retirement is 5 or 40 years ahead, consider it carefully.
Do you contribute to a pension or provident fund at work? Do you have any retirement annuities?
July is the month to:
- ensure that you understand the information on your pension or provident fund statement.
- establish if you are putting a sufficient amount away for retirement.
- revisit the funds (retirement fund at work or retirement annuity) in which you invest.
August: Establish an emergency fund
Establishing an emergency fund should be high on your list of priorities. As a rule of thumb, you need to have 3 – 6 months of disposable income handy should unforeseen circumstances arise.
At best, the money should be placed in a low risk investment.
September: Review your short-term insurance
If you own a car, a house or other valuable possessions, you need to review your available insurance against theft, fire and other unfortunate events.
Consider what you need and the cover that you currently have. When last did you request an updated quote from your insurance provider? Also update your personal details with your insurer.
October: Consider your savings goals
Be it saving for your children’s education, an overseas holiday or any other goal, as with all other things, you just need to start.
Establish the amount that you would need and the time frame in which to reach the goal. Then decide on an amount that you need to set aside every month to reach your goal.
It is best to ask your CFP® professional to assist you with determining the amount you would need or recommending suitable options for your savings.
November: Review your medical aid option
At this time of year medical schemes usually send out communications requesting us to review our medical scheme options and inform them if we want to change options.
If you are a current member, consider the details of the different options and inform the medical scheme if you want to change options.
If you do not have access to medical aid, consider taking out a basic hospital plan on a network option so that you have something in the event of an emergency or if you need to be hospitalised.
December: Use your bonus wisely
As soon as you know the amount of bonus that will be paid out to you, plan what you are going to do with it. You may want to add to your holiday savings or to your savings plan for your children’s future education.
You may even want to pay off high interest debt.
As soon as the amount is paid out to you, transfer the money to the identified areas. Above all, do not allow the money to stay in your account over the holiday season. You will find gaps to fill with this amount.