Where to Focus Your Finances

For all our good intentions, personal finance blogs, tweets and articles can make you feel like there’s too much to do, too much to know and always, always too little money to get all of it done.

Bond repayments, car insurance, life insurance, dread disease, school fees, emergency funds, saving for tertiary education, saving for retirement… with all these financial obligations waiting for you, heaven forbid you have a moment of weakness and buy an overpriced garage pie because it’s Monday and you just can’t anymore.

It’s okay to feel overwhelmed. And here’s a little nugget of truth to carry with you and focus on when it all feels too much:

Very few people have all their financial ducks in a row.

Particularly in your younger years, you simply won’t have the monetary means to have savings AND insurance AND investments all going at once.

So what’s the solution?

Prioritise.

Knowing where you are on the financial journey will help you know what to focus your finances on. Here are the most common stages most people go through. As always, this is not financial advice, just general guidelines.

Stage 1: Can I live?!

What the duck

If you’re like most South Africans, you’re in Stage 1. This where your income is used primarily just to get you through the day-to-day. Maybe you’re just making ends meet, or maybe you’re relying on credit to keep your head above water.

Your biggest obstacle might be tackling your unsecured debt. That’s the type of debt that isn’t attached to owning something physical like a car and house. Imagine borrowing a substantial amount of money to buy an ungodly amount of chocolate. If you’re anything like me, you ate all the chocolate in the car before you even left the parking lot. The chocolate is long gone but you still have to repay the money – that’s unsecured debt.

Priority:

  • Figure out a budget
  • Get out of debt
  • Even if it’s small to begin with, build an emergency fund

Stage 2: OMG, am I adulting???

You guys, I have insurance now

In this stage, you’re hopefully free of unsecured debt. You may still owe money on a car and/or a property, but these kinds of debts, particularly a home loan, can be tackled over a longer time frame. Car and house/apartment/rent repayments aside, if you’re managing to save some money each month, here’s the biggie you need to focus on:

Even if it’s a tiny amount, you need to start saving money for your retirement. Time is far, far more valuable than money. Once it’s gone, it’s gone. No amount of hustle will ever bring back that precious time in which your money can grow, either through compounding in a bank account, or by investing in the stock market. Not investing earlier is pretty much the biggest regret most financially savvy people have.

Saving for granny panties aside, it’s a good idea to really beef up those emergency funds, and then look towards protecting your assets with some insurance. If you’ve bought a property it’s likely you already have Home Insurance, which is often mandatory when purchasing property in SA.

Insurance which covers things like your home, the contents of your home, and your car, is called Short Term Insurance. And having it means you’re not left homeless if something catastrophic happens to your property. Damage caused by a flock of angry geese is probably not covered by insurance.

Priority:

  • Save for your retirement
  • Bulk up your emergency fund
  • Look into short term insurance

Stage 3: Dentures don’t buy themselves.

Mentally calculates annuity draw-down rates

In this stage, you’re probably sharing your nest with someone special, have two incomes, and might even have laid a few eggs. Actually that last bit sounded a lot like something you’d see on a trip to Thailand. Scratch that. What I mean to say is you probably have kids. If you can also lay eggs, more power too you. That’s quite a talent.

You’re hopefully in a solid financial situation where not much ruffles your feathers. Along with really focusing on retirement savings, some people use this stage to set up tertiary education funds for their kids. Others feel that when parents pay for university, they’re denying their kids the crucial life lesson of learning the value of hard work etc etc. It’s a very personal choice and one I won’t ever judge.

What definitely isn’t a negotiable, from my experience, is Life Insurance. If you have kids and/or a wife who depend on you and your salary, you need to protect them in case your goose gets cooked. Life Insurance, along with things like Dread Disease and Critical Illness Cover, fall under Long Term Insurance. It’s a sucks-but-true scenario that as we age, our health is likely to falter, and you can cushion the fall somewhat with the right kind of policies in place. Unless of course you are so loaded that you can self-insure, in which case you’re probably in Stage 4.

Priority:

  • Retirement savings.
  • Long term insurance
  • Possibly tertiary education funding

Stage 4: What should I name my yacht?

They see me floatin’…

If you’re in this stage, you won’t even be reading this. You’re too busy buying businesses for additional revenue streams or listing as an IPO or some such nonsense. You’re capitalism personified.

Lastly, keep this in mind:

Your finances will always be a moving target. Your circumstances will continually change and so might your financial goals and aspirations. Just like those ladies in Thailand, it’s important to be flexible. Be prepared to adjust your strategy, and know that if you make a mistake, most decisions can be reversed. Now spread those wings.

– The Money Mother Hen

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