Plan for the future by saving more than you think you need to

We’re well into the second half of the year but there’s still time to look at our finances differently – if you have not started already.

What is your financial wellness status? Are you financially fit? Have you been able to reach your financial goals or do you think you’re still far from achieving them? What can you do about it?

Ester Ochse, FNB integrated advice product head, describes financial wellness as “a measure of how well an individual is managing their finances, considering all aspects of money, from budgeting all the way through to saving and investing”.

“The long-term effect of overall financial wellness includes achieving financial goals, the ability to withstand financial knocks and retiring comfortably. This further includes having the right education about where to place money and what products/financial vehicles are suitable to meet your goals,” she says.

Sowetan Money put some questions to Ochse and her colleague Ilse Smuts, a cash and investments product growth head on financial wellness.

How does one know that they are not doing well financially? 

If you are not meeting your financial needs and this is a consistent occurrence, which may lead to unstable cash flow and heavy reliance on credit to make ends meet. An example of this is when one is spending more than they are earning, using credit to live a particular lifestyle, have no risk cover and no savings, says Ochse.

What is the first step to financial wellness?

In simple terms, spending less and saving more with extensive financial planning. The essential step would be to assess your financial goals and look at what you are planning towards. Once you have outlined your financial goals, then you can start working towards them. These goals can include being debt free, ensuring that children have a good education or retiring comfortably, says Ochse.

What follows thereafter?

Budgeting regularly and keeping track of your daily spending, smart investments or savings and paying off debt as fast as possible to increase your cash flow. It is essential to prioritise the needs (accommodation, transport) over wants (eating out and fashion) to achieve financial wellness, says Ochse.

Once someone has been able to get themselves out of financial distress, what steps should they take to make sure they do not regress?

Discipline and healthy financial goals. Something as simple as doing a monthly financial check in and using apps such as Smart Budget on the FNB App to keep you on track with your spending. Another good tip is aligning debit orders for home loan payments, savings, investments as well as life cover with salary date. That way the money is out of the account and the important components are covered, before spending the rest. If, however, they do find themselves in financial difficulty again, speak to the financial services provider first, they may be able to assist, says Ochse.

What are some of the challenges women face when it comes to their finances and how can they overcome these?

In essence, women’s struggles with finances are dependent on several factors such as, income bracket, family structure and influence. For example, some women struggle to live within their means, and this may be as a result of following trends or family responsibility, which some may refer to as black tax. One of the challenges women face includes being single mothers and living longer. Budgeting, tracking daily spending and the appropriate financial advice may help a single mother in the long term. A small change can make a huge difference to their overall financial wellness and that of their family. For example, freeing up R300 per month can contribute towards one’s retirement savings or school fees making a significant difference, says Smuts.

What is the importance of drawing up a monthly budget?

Sticking to it is even more important. Budgeting is allocating money coming in and providing structure in how it is spent. This is important as it serves as a roadmap on what is important (needs vs wants). It is also a good thing to look at one’s budget on an annual basis to ensure that it aligns to what is important, says Smuts.

What is the importance of having a financial advisor and what assistance do financial advisors give?

Financial advice can be useful – the advice would depend on each person’s specific circumstances. Having an advisor is essential in becoming financially savvy because advisors are skilled in providing individual financial knowledge. Financial advisors can assist with investing as well as insurance. They also provide an objective view on one’s finances and key financial focus areas. It is also important to note that not everyone can provide financial advice. Only trained and accredited (registered with the Financial Sector Conduct Authority) individuals can provide financial advice, says Smuts.

Is there something called financial stability? What is it and how does one get to that point with high interest rates, rising cost of living, etc. What steps can one take?

Yes, there is, and it starts with creating healthy financial choices and placing yourself in the best possible position to deal with any unforeseen circumstances. Financial stability includes being knowledgeable about the economy whether local or international and understanding how that can impact you as an individual and your household. To overcome financial instability, one would have to get a plan in place, with a budget and keep a close eye on where one is spending and check that spending is largely going to your needs, which includes savings, investments and insurance. Plan for the future, be realistic, save more than you think you need to, says Smuts.

Smuts adds that one should always have a slush or emergency fund (topic for another day).

mashabas@sowetan.co.za