During Financial Planning Week in November, Veritas Wealth took financial planning to the people, pulling together CERTIFIED FINANCIAL PLANNER™ professionals (members of the Financial Planning Institute) from four other Cape Town practices to run two well-attended free workshops.
The two groups – low income workers (mostly domestic workers and gardeners) and young people between ages 20-35 had similar concerns. Here are some lessons we shared with the groups that we all can take heed of:
All companies want to sell you something
To do this, they talk about lofty goals like “helping you” or “healthier lifestyle” or “social status” or simply “more fun” But, they are ultimately selling you something. It could be credit, medical insurance, a car or a soft drink. We need to be more guarded in our response to this kind of advertising. We must decide what we want first, then go out and seek it, rather than be sold the experience. As individuals, we need to take control and stop reacting to emotional marketing.
The 7 Day Rule
Your child sees something at the shop and “cannot live without it!” You should reply: “No problem, you can have it, but we are going to leave the shop now and think about it. If in a week’s time, after considering all the sacrifices needed to get the item, you still want it, then we will buy it next week.” This little tip should really be applied by us adults as well…it would probably save us all a small fortune in impulsive purchases. A good friend of mine, who is a compulsive shopper, believes that 90% would not return in a week’s time.
Pay off small debts first
In both sessions, the first question we were asked was: “What do I do if I am making financial mistakes and how do I turn things around?” Our advice was to take small steps. Start with the smallest debt and accelerate the repayments to get rid of it faster. Then you can say: “One down!” You’ll feel proud of yourself and move onto the next biggest debt. It could be argued that you pay off the debt with the highest interest rate first, but it’s important to reward your hard work and make you feel like you are getting somewhere. It will build your sense of control.
Know where you spend your money (then prioritise)
The first step towards clearing debt is to understand where you spend your money. Few people accurately know how much they spend every month, and where. For one month, record your expenditure. Prioritise them as essential or non-essential. Essentials are food, rent or bond, electricity, rates, school fees, medical aid, life cover, pension savings. Non-essentials are DSTV, cell phone, internet, Telkom, restaurants, coffee, magazines and newspapers. Now you need to create some money to pay off debts, so decide to bring your lunch from home (this can save you about R30 per day, or R150 per week or R600 per month). If you stop buying the paper or magazines for a few months, this could be another R200 per month saved. Now you have R800 freed up to pay down your debts more quickly. But, you can only do this if you know where you spend your money. Having a budget gives you control! You only need to sacrifice on your lifestyle costs for the time it takes to get your debts paid.
You need to understand how the different products sold to you work. If you do not pay off your credit or store card at the end of each month, you will pay around 23% interest. If you have a home loan, you pay around 8% interest, depending on your credit rating. Only save money in money markets or investment clubs if you don’t have a bond on your home.
If you are in a shop and the person at the till asks you, “Straight or budget?” take it as a personal insult. If you have to put it on budget, you can’t afford it. Who wants to pay 23% interest extra? Take responsibility and control your own destiny.
By all means, buy the kids presents, as Christmas is a special and magical time. But we often waste money buying gifts for adults. Have the conversation with your family now, so that you can put in place some gift-giving guidelines. Everyone in the family can be tasked to buy a gift for one of the adults – put a Rand limit on it and stick to it. Each adult gets one present from an adult family member and one from his spouse. You will save a lot of money, and just as importantly, time and associated stress.
Being in debt is stressful
We have all been in debt at some level, but we are not mindful enough of the level of stress that comes with it. Think about this the next time you are standing in front of goods, deciding whether to buy on credit. Think about what it will feel like to see your next credit or store card statement. Always remember that you are being sold something and businesses are there to make a profit. It’s usually not worth the stress that can keep you awake at night, make your heart race and potentially make life feel out of control.