Guide To Financial Independence For Women

How many of us can actually admit that our financial discipline is quite poor. We have the best intentions of saving towards the next family holiday (thereby avoiding tapping into the overdraft), but life pressures always seem to get in the way. The pressure of wanting your children to have more and a better chance at life than you did. And always wanting the best for your family, even at the expense of your overdraft or credit card.

Ronelle Kind, General Manager of Member Engagement Solutions at Momentum Corporate says, “South Africans in general have a poor savings culture where immediate gratification and living on credit is not unusual.” The South African household wealth index compiled by UNISA and Momentum shows the most critical component to financial success is behaviour. A change in behaviour is the fundamental difference between 25% of respondents classified as financially well and the remaining 75% as financially unwell.

She says, financial knowledge has a large impact on your spending and saving behaviour. The index showed that most households in South Africa are not money-savvy as they scored only 38.4 (out of 100) for financial literacy. To make matters worse, they don’t have enough access to expert financial advice. TransUnion’s South African Consumer Credit Index shows that consumer credit health is deteriorating and consumer stress is on the rise. Getting into good shape financially sounds like a tedious and daunting task but the best time to start is now. By setting mental goals for yourself and your family, you can start imagining the possibility of reaching the end of the year guilt and credit-free. In line with your new mental frame, design a plan that is reasonable, flexible and doesn’t require an overnight drastic change in your standard of living.

Kind provides these six kick-starters as a guide to improving your finance. Focus on one kick-starter a month according to your calendar but aim to tackle them all. This is your life, your lifestyle, your challenge – take the broad strokes and make them work for you! Here is the modern woman's guide to improving your finances.

1. Know your limits

You may know that you’re overspending, but do you know on what? Spend some time to review previous months’ bank statements and get a rough picture. Some expenses are non-negotiable – e.g. bond repayments and electricity – but what about the others? The point of this step is to derive a realistic budget based on your personal drivers and identify areas to curb. You’d be surprised at how simply being conscious of something modifies behaviour.

2. More is not Better, Better is Better!

The age of cards – 3 credit cards, 5 store cards, 10 loyalty cards. A surfeit of cards is a beautifully designed illusion to provide us with comfort and distraction: “I know I didn’t need this, but at least I’ll get loyalty points every time I swipe it.’ The sad reality is that bank cards attract fees. Credit split over various cards/ banks make it hard to track spending and interest. Look at the interest you’re paying on your various accounts and choose the most favourable rate. Next, consolidate your debt to one account and close the others. You do not need them! In the long term it is better to face a whopping minus R30 000 on one account instead of three different overdrafts worth R8 000 plus one in-store credit worth R6 000.

3. Close down that overdraft

Think back to that time when you had a few more rands at the end of the month and you decided to settle your credit card debt. A different approach could work better – if credit card debt amounts to R8 000, rather reduce the credit limit to R7 000. You have the liberty to spend the R7 000, but in the following month, limit your spending to R6 000 and keep on reducing it by R1 000 each month until you’ve conquered that debt. It’s far easier to reduce your spending by R1 000 a month than to tackle the full amount in one go and this way, you are making a lot of progress. In a few months, you’ll be on zero overdraft. If you’re worried about emergency funds, rather continue saving the amount that you used to pay towards your monthly debt.

4. Creative spending is safe spending.

Try and be a little creative. Extend your monthly visits to the hair and beauty salon to 6 weeks or even 8 weeks. Include your family in the budgeting process, you cannot do this on your own. Don’t cut out all the things you love, but find ways of doing them without hurting your wallet. Plan for family excursions and entertainment, do not fall into the “spur of the moment” trap.

5. If You Think Nobody Cares That You’re Alive, Try Missing a Couple of Payments…

South Africans are worryingly ill-informed about credit. Try not to only pay the minimum due on your debt each month as the interest you accrue is often brutal. There is a trend where people don’t pay anything for a few months and then settle the full amount when their financial situation improves. Unfortunately, this will have a negative effect on your credit score. Lenders want to know that you are not over-indebted and that your repayments are predictable and reliable. So make sure you’re paying off your debt quickly, timeously and consistently. Reduce unnecessary limits – even if they are unused, lenders look at your overall facility i.e. the total amount you are able to spend, not that which you have spent. A poor credit score can affect the interest rate you get on a loan and end up costing you a fortune. Engage proactively with credit providers to make manageable payment arrangements – remember, lenders and bureaus don’t want to give bad ratings; the former want their money and the latter just collect data.

6. Being Over the Hill is So Much Better than Being Under it!

In the early 20th century, life expectancy was 31 years. Today it is 68 years. As longevity increases, we have a shorter period in which to save for post-retirement consumption, making long term savings vitally important. Getting rid of debt is important, almost as equally important as enjoying the present. Solid investment and proper planning can mean a comfortable retirement village instead of a back room in your relative’s garage. The power of compound interest is real, therefore be smart about it. Retirement schemes often offer good value for money as a savings vehicle both from a fee and tax perspective, retirement annuities allow you to take advantage of tax deductions. If you’re unsure, speak to a qualified financial planner.

“These 6 tips are not exhaustive, bearing in mind your circumstances may require a different approach. Be pro-active and start moving in the right direction towards improving your finances,” Concludes Kind.