Look out for financial potholes
JOHN MANYIKE
THE POTHOLES on our roads can make driving a nightmare, and if you don’t hit your brakes on time or are not cautious of financial potholes you can end up with a big hole in your torn wallet. The same finesse we apply when negotiating potholes on the roads is equally important when it comes to personal finances.
Falling victim to financial potholes is common in South Africans, because we tend to rely on credit to cover the gap between our paydays.
Informed estimates say that the average South African (earning about R20 000 a month) spends about 66% of their earnings on paying off debt. We therefore spend our time trying to fill the financial potholes we have created, rather than building a future.
Like traffic potholes, financial potholes appear when we buy stuff out of impulse and aren’t paying attention. We suddenly find ourselves in trouble, and it’s too late to avoid the resulting money crunch. Rather than face them, we try to move around the edges—knowing that tomorrow, the hole in our path will get deeper and our troubles even greater.
The stress of being unable to answer your phone, avoiding creditors, and drea-ding knocks at the door pile on anxiety, and only complicates things.
The result could be car and property repossessions, and an impaired credit record. Since some employers do a credit check before hiring, this could even ruin your chances of getting a better job.
Being aware that potholes are usually self-created and can be avoided altogether is worth the effort. However, skirting financial potholes requires several courses of action, which include the following:
Understand yourself
Successful personal money management begins in the mind. If you know that you often bite off more than you can chew financially, then set up a budget that you can follow. Avoiding spending on small luxuries that are part of your life can have great rewards.
Get rid of the cards and friends that make spending money easy, and if you need help, find it with a qualified personal financial planner. Most importantly, know your triggers—and avoid them.
Pay attention
It’s a fact that bad finances are often caused by neglect. A significant number of people don’t have a monthly a budget and don’t know where their money goes.
If you aren’t paying attention to your present, chances are that important things like saving for emergencies, retirement, and having life insurance to ensure financial security and/or risk protection for your family are also being ignored.
Know what you are worth
To calculate your net worth, you should add the value of your house, savings, retirement funds, and personal property; and deduct what you owe. Then you can begin planning a future in which what you own is more than your debts.
Knowing your worth goes beyond numbers. Appreciate yourself and your values to the extent that you don’t need to spend money or live a particular lifestyle to validate who you are in society.
Increase your knowledge
The more you know about managing credit wisely and investing in your future, the better you will be with your money.
Taking insurance to cover your debts can be a valuable way of ensuring that your family or partner does not inherit your debts if you are retrenched or die suddenly.
Life is full of financial potholes
This is a reality that can sometimes scupper the most meticulous planning. However, for the most part, they can be avoided by well-informed, responsible people who pay attention to the road they travel to achieve financial success.
Coping when you know that a massive pothole is forming in front of you is just as important as preventing unexpected dips and ruts on your financial journey.
John Manyike is head of financial education at Old Mutual.
