by Boitumelo Makobosheane
Today I will be talking about debt, investing and savings. I am 24-year-old and this is my second year working as a financial manager I have learnt that one of the financial crippling things is debt. What is debt? It is money that you borrow and have to pay back with a certain percentage attached to it and this is called interest. There is bad debt and good debt. Bad debt is a vehicle (depreciate) credit cards (high-interest rates). Good debt is home loans (low-interest rates).
Back in university, I was doing my final year, I worked part-time as a waitress at Rockafella’s to finance my life, the salary wasn’t exactly Rosey we received R 15.49 per hour worked 4 hours a day 3days a week if you were lucky 5 days. What’s the first thought you get when you have a payslip? Well for me it was hey let me get clothing accounts I then opened one at Mr Price paid R175 and The fix paid R 250 a month.
I ended spending my whole salary on expenses I was 21year with a whole lot of debt. In 2018 I got a job and “I could afford everything even buying a car” but because I understood the principle of money which is if you can’t buy it cash then you can’t afford, then I couldn’t afford it. I used the snowball method by David Ramsey to get rid of my clothing accounts. What is the debt snowball method is where you pay the smallest working your way to the largest regardless of the interest rate. This method is designed to help you change how you behave with money and gives you power over your debt. My Mr Price account I had a total outstanding amount R2289 and the fix it was R3100.
Step 1 list all your debts from smallest to largest.
Step 2 make minimum payments on all except the smallest, paying as much as you can with the smallest.
Step 3: Repeat this method as you plough your way through debt
I started using this method in February in July I was done with my Mr price account, broke the card and then took the R600 that I paid on accounts and started paying off the fixed account which had a closing balance of R1600 in July, then in October, I was debt-free. You can use this method on:
- Payday loans,
- Student loans,
- Medical bills,
- Car notes,
- Credit cards balances,
- Home equity loans,
- Personal loans,
The other form of debt that we as woman battle with is consumptive debt examples of consumptive debt is clothes. Consumptive debt is a great example of unnecessary debt because of society and its standards its okay to take a taxi don’t go into debt buying a car that you don’t need.
- Start an emergency fund, what is an emergency fund? This is money that is kept in an easily accessible account for unexpected emergencies e.g losing your job, a burst tire etc. a fully-funded emergency fund covers 3-6 months of the main expenses. This will then prevent you from resorting to credit cards and getting into debt again. Beware not to rationalize the use of the emergency fund for something that you should save for and purchase. Live within your means and remember if you can’t buy it cash then you can’t afford it.
Saving is never about the money; rather it is about forgoing the ordinary for what you find extraordinary also it is to preserve the current value of money. There are 3 laws to savings
- What exactly am I saving for? Because when saving you need to save with a goal
- Separate your savings from your spending money
- Every rand counts
Saving requires consistency, discipline and a changed mindset. When saving the intention is to how much money are you growing? And it is a bridge to investing. The parkisan law states that expenses increase to meet income, this means the more you earn the more you spend. My saving method includes paying myself first income –savings = Expenses which I then divide into percentages 25/25/50 savings, investing and expenses. You should at least look at saving 7-10% of your income.
Investing is the act of committing resources or capital to an endeavour (a business, project, real estate, etc.), with the expectation of generating an income or profit. In colloquial terms, investing can also mean putting in time or effort – not just money – into something with a long-term benefit, such as education.
You can invest into a bond, mutual funds and the buying of shares. You often invest to protect the purchasing power of your money and to grow your wealth. You must be asking yourself what exactly protecting my money from good inflation which is known as the general increase in prices of goods and services over time.
We grow our money to maintain our purchasing power.
Compound growth – is having earnings on your earnings (reinvesting) but you should know that the potential of higher returns necessarily comes at the expense of more risk eg investing R1000 on compounded interest year 1 you interest is R100 and on year two, you are now not only receiving interest on your invested amount but also on your interest which makes it R110 year 3 R121 and so forth. Also, it is important to not put your eggs in one basket. Invest in different markets.
Financial education has by far to be the most important, know how to invest, understand tax. Here is a list of the things you should do to manage your money:
- Track your spending,
- Pay off all your debts,
- Automate all transfers including your debt,
- Negotiate your bills ( e.g car insurance )
- Buy using cash only
- Stop paying for convenience ( e.g takeaways )
- Make a grocery list,
- Quit bad habits,
- Practice the 30-day purchase rule,
- Turn trash into cash,
- SPEND LESS THEN YOU EARN,
- Don’t just save invest,