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Make your money work for you

A certified financial planner can help devise a tailor-made financial plan for you, experts agree.
A certified financial planner can help devise a tailor-made financial plan for you, experts agree.
Image: Stock image

Take charge of your future by taking control of your finances.

The Sowetan Money team has some ideas on how you can do it

See a financial planner When we’re sick, we see a doctor. When our cars give us trouble, we call a mechanic. Yet when we have money problems, most of us are reluctant to seek advice from a financial planner.

The 2017 Old Mutual Savings & Investment Monitor found that most city-dwelling South Africans surveyed said they wouldn’t engage a financial planner because they didn’t earn enough, suggesting that consumers think only rich people can afford the services of a financial planner.

This isn’t true. There are financial planners for every segment of the market who can devise a tailor-made financial plan for you.

“A financial plan is your GPS to financial security. Without a plan, you have no way of knowing where you’re going,” said Frank Magwegwe, a financial planner and financial wellness expert.

Mistrust is another reason consumers avoid financial planners; they fear being scammed. To avoid a financial crook, make sure you consult a financial planner who is well qualified – ideally one with the Certified Financial Planner (CFP) accreditation.

Magwegwe, who has the CFP qualification, said that one of the first questions you should ask an adviser is:

How are you paid?

“By asking that question, you can establish if the adviser is under pressure to sell you some thing.”

Advisers are paid in various ways. They may earn commission on products sold only, earn a basic salary plus commission, or they may earn a fee that is a percentage of the amount of money that you invest on their advice. Magwegwe said you need to be careful of those who earn commission only.

Draw up a budget

A budget is a plan for your money, and the cornerstone of a financial plan. Before you draw up a budget, analyse your spending.

Look at your last three bank statements and keep a record of how you spend the cash in your wallet for at least a month.

Your budget should list all your income on one side and all fixed and variable expenses on the other. In other words,

what is coming into your bank account (and your hands) and what is going out.

Magwegwe said a good financial planner will give you a template for a budget.

“I also strongly believe that in addition they need to give you some guidelines. For example, there are three important

●Your debt-to-income ratio.

This is your total monthly debt repayments expressed as a percentage of your gross monthly income. Magwegwe said it should be no more than
25% excluding your home loan repayment, or 40% including your home loan repayment.

“If your ratio is more than 40%, you need a debt reduction plan,” he said.

●Your net worth: this is your assets less your liabilities. “It’s a wonderful number to track,” said Magwegwe. “Every time you incur debt, you negatively
impact your net worth.

The more you pay down your debt, the greater your net worth.”

●Your emergency fund: Savings for a rainy day should be the equivalent of three to six months of your net income. Everyone needs an emergency fund so that you can avoid
the high cost of credit when you have an expense that you didn’t budget for.

Cut back on debt

If you have debt, first pay it off, because it is very costly. Saving the monthly interest charges will improve your budget enormously.

Banks charge you more interest on money you owe than they pay in interest on money you save with them.

If you have a credit card and one or more store cards, consider paying off and closing your store cards.

The maximum that a credit provider can charge you in interest on these credit agreements is the repo rate plus 14% – at the prevailing repo rate (6.75%), that’s 20.75% a year.

If you never pay your clothing account in full and keep a balance of R1 500 owing, it will cost you R311 in interest alone over the course of the year. You will also be liable for a monthly service fee of R60.

Try using a credit card only, keeping all your debt in one place, paying one admin fee only and paying the amount owing off in full at month end.

Start a savings plan

When your debt is out of the way it’s time to start a savings plan. You may think you don’t earn enough to save, but if you
want to get your money working for you, you will find a way to trim your expenses to find room to save, no matter how little.

Money you save earns interest for you for doing nothing other than not spending it and will help you build a stronger
financial position.

Delay spending, set a goal and save towards it.

Set up regular payments into a savings account or investment so they are the first thing that comes off your salary every month.

You won’t miss money that you don’t see in your account.

If you can, set short, medium and long-term goals and save for each.

For example, a short-term goal could be to buy a new fridge, television or tablet at the end of the year, a medium term
goal to put a deposit on a house in five years and your long-term goal, saving for retirement.

If you are earning more than the tax threshold, currently R75 750 a year (about R6 315 a month), consider saving in a retirement annuity or an employer- sponsored pension or provident fund to reduce your tax.

Review your life cover

Your biggest asset is your ability to earn an income for many years until you retire. Make sure you are protected against losing that asset with lump sum disability insurance or
monthly income protection.

If you have dependents, make sure your life cover provides adequately for them should you die. If your personal circumstances or lifestyle has changed since you last reviewed your life and disability cover, it’s time to revisit your cover. Also make sure you’re still happy with your choice of beneficiaries.

If you have changed jobs or stopped smoking, for example, this could have a positive impact on your premiums.

Check your medical cover

The new year is a good time to check your medical cover. If you don’t have any cover, you will have to take your chances at state clinics and hospitals or pay out of your pocket for private doctors or hospitals for any health issues that arise.

You may be young and healthy, but no one can predict accidents or serious illness that strike at any age.

Even the onset of an ongoing or chronic condition, such as epilepsy, could incur the recurring expenses of scans, blood tests and medicines that could throw out your budget.

If your employer does not subsidise medical scheme cover for you or the cover is too expensive, consider relying on the government for hospital cover but take out a plan that
covers what is known as primary healthcare, typically offering cover for unlimited visits to a private GP,medicines, X-rays and basic dentistry and sometimes maternity and optometry benefits.

These plans start from about R250 and R315 a month for a single member depending on the benefits and whether they are offered to employees or to individuals.

If you have medical scheme cover but regularly run out of funds in your medical savings account during the year, consider upgrading your cover or
setting aside additional funds for medical expenses.

Review your will

Your will is a plan for your money and your assets when you die. It should be reviewed annually. More than 70% of working South Africans do not have a will, according to
the Master of the High Court.

Thandi Ngwane, the head of strategic markets at Allan Gray, said if you have dependents and die without a will, you put their financial future at risk.

Your will should also include the names of guardians for any minor children.

Take out or update your short-term insurance.

Could you afford to replace all the furniture and goods in your home, your car or your
house if they were stolen or damaged in an accident, fire or some other disaster?

To protect against the financially devastating losses, you need insurance and you should check it annually to see if it is still sufficient. Also check how competitive your cover is – if you have had insurance for a few years claim free, you might be quoted a better rate.

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