Just like giving your house or property a good clean out at the turn of season, why not do the same for the way you interact with your bank and manage your finances?
It is also a good time to check on your financial discipline. We know how tough it is sticking to a savings plan particularly now that so many families are struggling financially. The end of June marked the end of payment holidays offered by many banks, but many consumers’ pockets remain empty as a result of the economic catastrophe brought about by the Covid-19 pandemic.
According to the DebtBusters debt index for the second quarter of 2020, unsecured debt increased by 18% in comparison to 2016 levels. For those earning R10 000 or more, the unsecured debt levels rose by between 30% and 40%. This means consumers are increasingly using unsecured debt to supplement their dwindling incomes.
“Now more than ever it is important to be financially disciplined and closely control how you manage your money,” says Neil Thompson, Head of Product and Customer Value Proposition at African Bank.
Thompson says with so many people struggling to pay off debt the thought of managing one’s money better is a daunting task and they just don’t know where to start. That’s why we’ve compiled a 6 point guide to get you started on the road to financial freedom.
- Know yourself
Because our spending habits have a lot to do with our money personalities, this should be the first point of departure – know yourself. If you’re able to identify your spending weaknesses, you’re in a better position to put measures in place that will help you to manage your finances better.
Tools to help: One of the best places to get to know yourself is with your bank statement. It tells a true picture of your spending habits and how disciplined you’ve been each month. Getting to know yourself isn’t a once-off exercise either — use your mobile banking app to access your bank statements daily, weekly and monthly and regularly adjust whenever you feel something isn’t working.
- Be clear about your goal
A good financial discipline plan is only as good as the goals you’re creating that plan for. Having goals is a great way to steer your behaviour. Whether short-term or long-term, your goals will give direction to the financial decisions you make daily.
- Get bank savvy
When times are tough you cannot be complacent about where and how you bank. Be smart and move over to online banking. Not only does it save time, it is also convenient, secure and intuitive. Another big benefit is that online banking services are mostly free. Check which banks gives you the best interest rates on your money and know the difference between variable and fixed interest. “Savings accounts linked to the variable interest rate will reduce if interest rates go down and this could impact your long-term financial goals. Fixed savings options like fixed deposits will not be impacted as the rates stay the same as those offered to you before the interest rate cut.”
Thompson recommends always seeking out savings account products which offer the best possible interest rate. African Bank’s Tax-Free Investment account offers an annual interest rate of 6.75%, for example.
The interest rate on savings, particularly for retirement, are crucial to financial security in the future. Always ensure you understand the interest rate you are getting and that it is the best possible rate to help you grow your money.
Finally, do your research carefully on bank charges. These can really add up if you are not careful.
- Create your budget
A budget enables you to plan and track where your money goes and helps with reaching your goals. However, your budget is only as good as your commitment to staying disciplined. So, it’s important that your budget is realistic and easy to follow, especially if you’re a beginner at budgeting or you are struggling to pay off debt. Once you have your bank statements, look at where your money goes each month. Then, create a more structured plan in terms of allocating money towards your goals and your financial responsibilities.
- Pay yourself first
Saving money can be hard if you have a lot of financial obligations. Many people pay bills first, then try to figure out how to save money from what they have left. A change of mind-set is necessary. The best way to reach your financial goals is to automatically pay yourself first. This creates the discipline of consistently putting money into savings because you don’t have to think about it every time you get paid.
- Track your spending and savings
Start keeping tabs on your money. Knowing where your money goes, especially every day, is key to becoming financially disciplined. Cellphone banking enables you to do just that by allowing you to access your bank statements anywhere and at any time.
