The dawning of a new decade gives you the opportunity to review your financial situation and make some positive changes. Picture: 123RF/KATARZYNA BIAŁASIEWICZ
The dawning of a new decade gives you the opportunity to review your financial situation and make some positive changes. Picture: 123RF/KATARZYNA BIAŁASIEWICZ

Many South Africans experienced immense financial pressure in the decade just ended due to the rising cost of living and a stagnating economy. But financial pain can be a catalyst for acting to improve your financial health.

The dawning of a new decade provides a good opportunity to break bad money habits and adopt some that align your life and financial goals over the next 10 years, says Ronelle Kind, general manager of member engagement solutions at Momentum Corporate.

We typically lack control when it comes to spending and incurring debt, she says.

"Although poor financial literacy contributes to this, the latest Momentum/Unisa consumer financial vulnerability index indicates that even consumers with high levels of financial literacy fail to put their knowledge into practice," Kind says.

Richard Reeder, a certified financial planner and Liberty Group advisory partner, suggests some introspection to notice when our financial decisions are driven by emotion.

"Being aware of the reasoning behind how you allocate money can help activate the part of your brain that helps you take control again."

Reeder says it is futile to set goals without having a plan and a budget for how to achieve them.

Silindile Ngubo, fund accountant at Cannon Asset Managers, says that without a budget it is difficult for you to monitor your spending.

A record of all your expenses in different categories helps you identify problems and opportunities, Ngubo says.

There are budgeting apps that can help with this; for example 22seven, which analyses transactions from your bank accounts and warns you when you are overspending. It is free to download from the Apple App Store and Google Play.

Budgeting is the first step in finding spare cash to reduce debt.

Sonto Lemeko of Standard Bank Financial Consultancy says debt holds most households back financially - South African consumers are drowning in debt to the tune of R1.9-trillion, about R200bn of which is the most expensive unsecured debt.

Ngubo says many people underestimate both how much disposable income they can free up in their budget and how much they can save in interest by repaying debt more quickly.

R230K

What you could save in interest by paying R500 a month more off a R1m bond on a 20 - year term

"If you have a home loan of R1m with an interest rate of 10.5% over 20 years, by only repaying the minimum amount due each month you would pay the bank a total of R1.4m in interest charges alone over the 20 years," he says.

"However, if you topped up your repayment by just R500 each month, you would shave nearly three years off your repayment period and save over R230,000 in interest payments."

It is critical to understand the difference between good and bad debt. Talk to a financial planner before taking on additional debt, because he or she will help you with a proper analysis of the benefits and consequences in a way that no lender will.

The next most important money habit to cultivate is "paying yourself first" by putting money aside for monthly investments before paying bills, making debt repayments or spending on luxuries.

"If you decide to save whatever you have left after all your other expenses are paid, there's a good chance you'll save zero," says Kind. "Before you pay your bills or buy groceries, set aside a portion of your income for savings."

Reeder recommends setting a level of risk that is appropriate for yourself and investing accordingly so you can grow your wealth over the long term. You need to invest with enough risk that you earn inflation-beating returns, but not so much that you are spooked into disinvesting by the ups and downs that come with the likes of equities.

Having longer time horizons will smooth out the ups and downs and then you can let compounding interest, "the eighth wonder of the world", grow your long-term wealth, he says.

Ngubo suggests that first-time investors open a tax-free savings account.

How you go about your daily life also affects how much financial freedom you gain over the next decade. Look at the finer details of your spending to identify what is frivolous and unnecessary so you can allocate more to growing your wealth over time.

Improving your earning ability is a powerful step to improving your financial state. Adopt the habit of continuously upskilling yourself so you can get ahead in your career. Don't be satisfied with staying in your comfort zone but bolster your CV by studying further and taking on challenging professional projects.

"Make a concerted effort to get to know people in your field by participating in professional conferences or local groups related to your career," says Ngubo.

"Sometimes it's not about finding the right opportunity but knowing the right people to point you to those opportunities."

Suffering a health setback can result in major long-term expense. So take care of yourself from a young age by eating healthily, exercising and going for regular medical checkups.

Reeder says rather than feeling overwhelmed by your finances, break the tasks down and start with those that are easiest for you. Then remain committed and disciplined.

Checking in with a financial planner or adviser regularly will also keep you accountable and on track with decisions about your money.

If your finances are already on track, now is a good time to review your position and goals and assess whether they are still relevant for the next 10 years, Reeder suggests.

You don't need to be a market geek who follows every twist and turn on the JSE, but there are some very easy-to-read books and websites with good advice about organising your financial life - resolve to read at least one this year, or subscribe to a personal finance site or podcast. Also, look out for financial workshops and conferences that will help you develop good financial habits to carry you through the next decade.

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