By John Kennedy
IF 2021 has taught us anything about triumphing financially in these crazy times, it is that those households that saved, invested and insured wisely, without borrowing beyond their means, made up the top 2% of financial performers in the country.
What is even more noteworthy is that this group wasn’t necessarily made up only of South Africa’s high-net-worth individuals (HNWIs) – many were middle-income households who had planned for the “rainy day” and had a buffer in place.
We have, to various extents, all had a wake-up call: good financial habits that include having solid long-term investments that compound in value over time, are the only way to ensure financial stability and the ability to have financial freedom and leave a legacy.
So, how should we manage our finances and break bad habits?
Here are my top 10 tips for financial freedom
1. Make time to review your financial situation
High-net-worth individuals tend to have little time for themselves because of their involvement in business and other activities. Consequently, financial decisions are very often postponed, yet it is important to take just an hour or two to jot down notes that could have important long-term repercussions.
2. “Marie Kondo” your possessions
Liberate yourself by assessing what things in your home and within your asset base you no longer need or use. We tend to add to our lives and possessions instead of removing what is unnecessary. Much of what we add does not introduce value but, in many instances, does corrode and depreciate further adding to the “expenditure burden”.
3. Embrace financial micro-planning
According to data estimates from the United Nations Population Division, life expectancy has risen from just under 50 years in 1950 to over 80 years in 2020, yet many individuals are living well into their 90s. Break your planning down into bite-sized portions. Any small win is still a win, so be objective and get rid of what you know to be wastage.
4. Clean up and turn around your expenses
Consider your properties. Is there excess? Can you use that excess profitably? What can you rent out to make additional income or sell off if it is no longer serving you? Are you using all your subscriptions? What debit orders are going off your account that no longer serve you?
5. Consolidate your financial management
Do you have a holistic financial plan? Write down and reassess whether there is anything across financial planning, your investment portfolio or fiduciary matters which you should sort out, consolidate or trim. There may be a gap in one or the other of these areas and that gives rise to concern or opportunity.
6. Get solid advice and assistance
Have you given thought to the long-term future? One of the best things you can do for yourself is to find a trustworthy adviser that can guide you, that you can bounce ideas off and from whom you can reliably receive global expertise.
7. Plan for any unexpected crises
Are you planning for contingencies? For instance, how has the lockdown and the advent of Covid-19 affected your finances and savings, and how are you intending to rectify shortfalls? Are you able to adapt to your new set of circumstances? Have you been unexpectedly retrenched or had to take early retirement, and are now unable to achieve expected financial goals, so that you must either find other employment or cut expenses to balance the books? Can you reconstruct your investment portfolio? Are you taking unnecessary risks through uncertain investments that are being touted as unusually profitable? Be careful of unscrupulous financial salespeople who prey on those less experienced in financial matters.
8. Divide your budget to make room for savings
If you earn R100, R70 should go to general expenses, R20 to savings and R10 into a bucket which provides for the unplanned or for the future dream. However, we all need a treat from time to time, so then you can reward yourself from the R10 bucket. Do not fall into the trap of spending the full R30 to find yourself at the end of the day without savings. The 70/20/10 formula is not set in concrete. What is important is starting the savings habit, even if it is only a small portion of your salary. Saving can be investing in your business or in an investment product – as long as it is productive and able to benefit from compound interest in the long run.
9. Consider your legacy
Ask yourself what legacy you wish to leave behind one day and work backwards to find the most optimal place to start to make that a reality. Remember that one of the greatest gifts one can leave to the next generation is an estate with all its affairs in order for a seamless transition to beneficiaries.
10. Invest for long-term freedom of choice
There is no silver bullet, but our philosophy is to worry less about what you can’t control and to take control over the things that you can influence and that will impact your long-term wealth.
May 2022 be the year to get your financial affairs and planning in order in line with your dreams and goals.
John Kennedy is the director and regional head at Citadel.
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