Many of us believe that having more money in the bank would solve our financial problems. And although we all can agree that having more money would certainly lift the pressure, it’s not really a solution. Many of us just simply don’t have the opportunity to increase our income in the way we would like.
But what if we told you that it is possible to lift the burden of financial stress without increasing your income?
It is possible to build wealth with your current income and it is possible to live a debt-free life.
The secret (also not so secret) is money management.
Debt can become an ever-growing monster. And it’s one of the quickest and easiest ways to stop financial growth. It feeds off interest and keeps you trapped in a monthly vicious cycle.
Mind you, not all debt is bad. Debt that allows you to make money, in the long run, is not to be sneered at. This could be purchasing a home, or paying for your education.
But most of us tend to take out debt that does not benefit us. Credit cards, personal loans, overdrafts and store accounts are rarely used to purchase things that will go up in value. In fact, many of us use this credit to survive every month.
Compared to 2016, nominal income has shrunk by 2%. And when we consider inflation and living costs have increased by 18% since 2016, your real income has probably shrunk by 20% over the past four years.
How scary is this stat? 20% of your salary has basically fallen away…
Another study recently reported that South Africans earning between R5000.00 and R20 000.00 are drowning in debt. And of course, most of these consumers have unsecured debt such as credit cards, personal loans, and store accounts.
It seems as if we would rather live in debt and luxury, instead of reaping the benefits a debt-free life could bring us.
All too often we make simple money mistakes that land us in trouble. Here are the top 5 tips we’ve found and can attest to for getting your debt paid off.
5 money management tips (that actually work!)
1. Create your personalised budget and stick to it!
Yes, you’ve probably heard this a million times, but it really is such an important part of money management and getting out of debt.
You need a budget, and you need to stick to your budget. By sticking to a budget, you will avoid turning to your credit card or store accounts to get through the month.
You will have to be honest with yourself about what necessities are crucial and what luxuries you can live without.
You can also view this article for a free budget template.
Ask yourself this important question before any purchase:
“Do I want it, or do I need it…?”
2. Start building an emergency fund instead of a credit fund for the unexpected…
South Africans don’t tend to have the best saving habits. So if you also struggle to save, you can at least take comfort in knowing that you’re not the only one. But the secret to creating wealth and avoiding debt is to have a savings account that you can access when the going gets tough.
The first payment you should make when you get paid every month is to yourself. Paying yourself means adding a bit of cash into a savings account EACH AND EVERY MONTH. Not only will this protect you from the unexpected, but it will also save you from needing to take out a temporary loan or going back into your credit balances.
You can start small by putting R500.00 a month in a savings account. Most savings accounts allow you to earn money on your balance so try to open an account that offers the most back.
You can also review this article about tips to get you to start saving.
3. Pay off debt using DIY strategies
Make it a priority to get rid of your debt! There are several ways of doing this. The debt avalanche method and the debt snowball method are two successful strategies to use to get out of debt.
The debt snowball method focuses on getting rid of your account with the smallest balance first. It’s great for those of us who like to see quick wins and it also makes it easier to budget for. You will still need to make the minimum repayment on all your accounts but your focus should be to throw any extra cash you have into that smaller account.
Once you’ve paid off the smallest account, you take that cash and add it to your repayment for your second biggest account. This way you strategically start eliminating your debt. And as the repayments increase on every account you tackle, it snowballs into a large sum that eventually knocks your debt out.
The debt avalanche method focuses on eliminating your accounts with the highest interest rates first. This is great for those who want to pay less on interest and more into their actual debt. Just like the snowball method, you still need to make minimum repayments on all your accounts. But shift any extra cash you have into paying down the account that’s costing you the most in interest every month. Once you’ve tackled that account, move on to your next heavy interest account.
When money looks like it’s running short do not take out additional credit.
Don’t do it. Your budget and emergency fund should help you avoid these pitfalls.
You are simply making more debt that will leave you in a worse situation for the next month.
If you already have more than one credit card or loan you are paying a lot in interest, try and avoid making new debt or using your credit facilities to get through the month.
Track your spending habits, go back and look where you have spent your money.
4. Set realistic financial goals
Those who fail to plan, plan to fail…
Truer words have never been spoken. And this mantra can be applied to many areas of our lives.
The most efficient way to start to pay off your debt and build wealth instead is by setting goals.
How do you set a goal? Using the SMART method.
Specific. Measurable. Achievable. Realistic.Timely.
I want to pay off my credit card balance of R30,000 within the next 6 months by paying an additional R2,000 every month into that account alongside my current minimum repayment.
Is this goal specific? Yes, it outlines exactly what you want to do. Is it measurable? Yes, you can add these amounts to your budget and you know exactly how much it will cost you to pay off this account. Is it achievable? Yes, if you’ve already worked out that you can afford an additional R2,000 every month. Is this goal realistic? If you can afford to pay R2,000 extra every month then yes. And is it timely? Yes, you’ve put time into it and you know that your goal is to achieve this in 6 months.
5. Seek professional help when you can’t do it on your own!
The first step to financial success is getting rid of unnecessary debt that doesn’t benefit you. Building a savings account is also crucial. And once you’re no longer paying money into your debt every month, you’ll be able to add more into your savings.
But if you’ve got so much debt that you can’t afford to pay for living expenses, let alone save, it may be time to seek professional help with your debt. There is no shame in seeking professional assistance when debt has become unmanageable.
Sometimes we need immediate financial relief in order to get back on our feet. The NCA has made provision for consumers who are no longer able to pay their creditors and living expenses.
If you feel that your debt has left you in a corner, get in touch with one of our consultants today. We will legally reduce your monthly repayments by extending the term, to ensure you have enough to pay for living expenses and to get back on your feet.
Leave your contact details below and one of our specialized consultants will give you a call.