Start by carving out some dedicated time to sit with your budget. Include your partner or children, or do it alone if that will be the most productive way to tackle it. This is not a fun project, being productive and economical is the key. Do your first pass alone if your partner is just going to distract you or weaken your resolve to build in some controls over your monthly spending.
Go through at least three months of bank and credit card statements line-by-line to see which black holes most of your money is disappearing into. You could very well be surprised at how much waste there is. Tally monthly costs for certain recurring items, the totals will start providing a clearer picture of where your money is going.
Re-evaluate all your debit orders and other regular payments. Are you still reading the magazines or newspapers you are subscribed to? Maybe there are cheaper and more useful online publications you can sign up for? Tip: Many leading international publications, such as the Economist and the New Yorker, allow non-subscribers to read a limited number of articles a month at no charge before being asked to subscribe.
What about music and movie streaming services? Are you one of those people who sign up for the free trial period and forget to cancel after the payment kicks in?
And the gym? Can you really justify the hefty monthly cost for good intentions and the occasional visit? If yoga is your ‘game’ maybe consider a pay-per-visit package rather than an unlimited monthly subscription. Paying gym fees and not using the facilities is even more foolish than doing absolutely no exercise at all.
Add up those bank fees and charges: Once you see the total cost of making frequent, small withdrawals (often from another bank’s ATM) you might rethink your relationship with cash. Many people prefer to not keep cash at hand, thinking of it as unnecessary temptation, but there is something about using cash that makes the experience a lot more conscious than swiping a card or scanning a barcode. If it saves you a chunk of money in fees every month it might be worth drawing a set amount of cash once a week and see how you manage it.
What about the charges you pay to have a fancy cheque account with bells and whistles you have never used? Are you using all the benefits, or even any of them? Have you ever written a cheque? Look at what the account offers and decide is it really worth, say, R300 a month (R3,600 a year!).
Try to keep things simple: one credit card is fine, two is a bit excessive, two credit cards and a pack of store cards is just foolish. Having a variety of clothing accounts and store cards is a way to fool yourself into thinking you have less debt than you do. Unfortunately, it doesn’t fool the bank or the retailers you owe money to.
Have a look at what you are spending on servicing debt. How much of this are you surrendering to items you no longer use, or even remember buying? Typically, the credit hierarchy has home and vehicle loans nearer the top, attracting the lowest interest rates. Credit cards, store cards and personal loans pose the highest risk to the lender, which demands a higher interest rate. At 18% (not the highest by any stretch of the imagination), your R10,000 credit/store card balance is costing you an additional R150 per month in interest charges.
Look at any insurance cover you have. The trouble with my generation is that either we have not engaged with the basics of financial planning at all, or we have a mate from university rugby days who sells us policies we don’t need. Many are paying for life insurance even though they don’t have any dependents. That money would be so much better spent on a long-term savings plan, such as a retirement annuity.
Putting money aside for your retirement years is an absolute necessity and must be worked into the budget. It is not a luxury, as the vast majority of South Africans discover when they retire. It is also tax deductible, meaning that you get some of the money you save back from the taxman.
Starting to save when you are young makes ambitious goals of a comfortable retirement easy to achieve.
In fact, the younger you start saving the less money you have to save because the growth of your investments compounded over time will soon catch up with and overtake the amount of money you have saved.As with everything else, it is very important that you keep an eye on the fees you are paying for your long-term investments. Just as growth compounds over time, the cost of fees compounds over time to reduce your savings pot.
Also, it is never too late to improve things. Even a retired person with a Living Annuity can improve their situation by paying less in fees.
No matter what stage of life you are at you should find out what portion of your savings you are paying away in fees. Unfortunately, this is sometimes harder than it should be. If it is difficult to work out exactly what you are paying in fees, ask yourself why would an organisation make it difficult for their customers to understand what they charge. The answer should make you redouble your efforts to get to the bottom of it. 10X Investments offers a service to retirement savers that makes this easy: send a copy of your investment statement and the company will do a cost analysis and comparison for you.
If your job includes membership of a corporate retirement savings vehicle, do your homework about what is covered. You will most likely be paying for risk benefits, including life cover and disability cover and maybe funeral cover and education cover for your children, perhaps even medical cover. Make sure you are not paying a fortune to duplicate cover across policies.
This is especially true for disability cover since there is a limit to how much disability cover you can claim, regardless of how much you are paying for. Disability cover is designed so that an injured or sick person is not rewarded for staying off work (ie a person should not be better off not working). Even if, for example, you have disability cover in both your office retirement fund and in your private Retirement Annuity and even, say, a third instance in an insurance policy with your bank, your combined pay-out will be limited to the maximum of one times what you were earning, not three times.
The bottom line is that you should always understand what you are paying for. Cancel any excess cover and put the money you save into a retirement annuity. You can claim cashback from Sars on money you save for retirement and your money grows tax-free until you retire.
Another line on your statements that is worth interrogating is reward schemes. You are not likely to be getting any memberships for free. You usually pay a monthly fee, for which you could be more than compensated if you cut out the coupons and presented them at the till, bought discounted flights, used the gym membership or even spent the points before they expired.
Admit it if you are just too busy to be fussed with all that voucher-collecting, points-accumulating, paper-wasting nonsense. But, don’t let the excuse that you are too busy stop you from getting your finances in order and plugging the holes in your budget.
Stephan is a director of 10X Index Fund Managers, a regulated manager of collective investment schemes. He is responsible for all of 10X’s financial products