As Spring approaches, the days get warmer and we move to level 1 of lockdown, there seems no better time than now to “spring clean” our finances. Debra Slabber of Morningstar Investment Management South Africa wrote the article below providing easy steps to get started!
In South Africa, 1 September is known as Spring Day, signalling the approaching change in season from winter to summer. This time of year is known to act as a trigger for people to tackle their annual “spring cleaning” ritual – they get rid of old or unused items, deep clean the house and do some general reorganising. This year has proven to be anything but ordinary and instead of doing this usual ‘spring clean’ ritual – I would like to challenge you to use this opportunity to take stock, tidy up and spring clean your finances.
Where to start?
In the words of Creighton Abrams (United States Army general during Vietnam War): “When eating an elephant, take one bite at a time.” The saying refers to the figurative advice about how to face a huge, overwhelming task. By breaking a large task up into smaller tasks, it becomes more manageable to complete. It is no different when you consider tackling the spring cleaning of your finances – the important thing is just to start.
- Assets refer to anything that you own, for example, property, investments in shares, unit trusts and cash in the bank.
- Liabilities refer to your debt, outstanding payments and loans – for example, your home loan/bond, car loans, student loans, credit card debt, etc.
- Income can include your salary, rental income, interest, and dividends earned.
- Expenses include all your fixed expenses – for example insurance payments, levies, and medical aid, as well as variable expenses (like groceries and electricity).
Once you have a clear picture of what your expenses are every month, it is much easier to set up a realistic budget. There are many budgeting templates available online if you get stuck.
Now that you have observed your income versus expenses, you should have a good idea of how you are spending your money. When it comes to spending, Warren Buffett’s words will always ring true – “Don’t save what is left after spending but spend what is left after saving”.
Saving for a happy retirement or a rainy day may seem like an obvious and easy concept to grasp but it is much harder to put into practice. If you are someone that struggles to be disciplined when it comes to saving, rather set up a monthly debit order to an investment account and let it do the work for you. That way you are forcing yourself to save before you are tempted to spend the money.
Most definitions of financial health are very one-sided. It often only focuses on economic or financial stability. Ignoring your emotional well-being could be a recipe for disaster. Even investors with enough assets to withstand any reasonable economic shock can be anxious about their finances, which can cause behavioural problems and overall dissatisfaction with their finances. On the other end of the spectrum, some investors aren’t at a good place economically but still spend carelessly, ignoring the ramifications on their financial plan. For a person to be truly financially healthy, they must find a balance between economic stability and emotional well-being.
Let’s try this spring to not only clean out our cupboards, but also our finances. Why not make a mental note to earmark spring day as your annual reminder to tackle your money maintenance going forward.
To get you started, download the Southwood budget calculator by following the link below: