It is personal tax season in South Africa and I thought that it could be the right time to pen down this blog to assist some provisional tax payers in order to plan better for their next tax season. Though the topic is beneficial for every person who would like to take their personal finance serious, to build a solid financial background for themselves or the next generation. It is also useful to the sole proprietors, contractors, self-employed and any other human being ☺️
1. Spend Less Than You Earn
Easier said than done, right? I know but it’s doable when determined!
It’s easy to KNOW that you should be spending less than you earn, it’s a lot harder to actually do it.
However, if you want to escape the paycheck-to-paycheck lifestyle that so many others live, you need to spend less than you earn. This is one of the most crucial but basic personal finance tips ever.
In order to do this, you need to track your spending. You can do this by either writing your purchases down or by using a free personal finance app.
2. Learn to Budget
Budgeting is not hard, and it doesn’t mean you have to stop doing things you enjoy.
Budgeting is simply creating a plan for your money so you have a better idea of where it’s going every month.
A popular and effective way to budget is with the 50/30/20 rule. How it works is 50% of your income goes towards the necessities (bills, food, housing, etc.), 20% of your income goes towards savings and the remaining 30% you can use for whatever you please.
This is a nice and easy way to break down your paycheck, but you might need to adjust it a bit to fit your lifestyle.
3. Break Down Your Income & Expenses
This is an odd little trick that can change the perspective you have about your money, and help you budget better.
It’s all about breaking your income and expenses down into daily values.
4. Pay Yourself First
When you pay yourself first, you’re investing in your financial future; you’re investing in future you, and future you will thank present you for doing so.
So, why not just pay yourself at the end of the month? That’s a lot easier, right?
Well, the reason why paying yourself first works so well is that once that money is sent to a savings account, you’re a lot less likely to spend it. If you wait until the end of the month to pay yourself, you might not have any money left!
Future you will be very sad with no money. Make future you happy by investing in yourself!
PS. The best way to pay yourself first is to set up deposit schedule that you will have to follow through every month. This will serve as a reminder and best finance routine so you don’t forget about savings.
5. Have Financial Goals
If you want to accomplish financial goals, you need to figure out what goals are important to you first. Having a clear goal can keep you motivated and help you come up with a plan to reach that goal even faster.
Now, don’t think that you need to set outrageous goals. If this is your first time thinking about personal financial goals, start off small and work your way up from there.
I’d suggest coming up with a few different goals in each of these categories:
What you want to achieve in the next 3-months
In the next year
In the next five years
This way you’ll have some short-term goals to look forward to, and some long-term goals to work towards as well. Your short-term goals may even be small stepping stones towards your bigger goals.
So, remember to set long-term and short-term goals, and keep track of them too! Write them down somewhere and set a day each month to track your progress.
6. A Credit Card is Not Free Money
A credit card is a useful tool in your finance toolkit, but it’s not free money.
When you purchase something with your credit card, you are borrowing money from the bank. If you don’t give that money back in time, the bank is going to start charging interest on your balance.
This debt can build up and become a monster if you don’t pay off your balance every month.
However, if you use a credit card responsibly and pay off the balance every month, it’s a good way to start building credit. Most credit cards also have other benefits such as rewards points, cash back, or travel points.
So, should you have a credit card? Well, it depends.
If you’re capable of paying off the balance in full every month, then you should have no problem managing a credit card and staying out of debt.
One last tip: Treat your credit card like a debit card. Pay it off in full every day if you have to. I try to pay off my balance every couple of weeks so that I don’t forget. I also set up a reminder on my phone calendar when a payment is due.
If you want to take it further, use a prepaid reloadable card instead of a credit card. These cards work just like debit cards, but they have the perks of credit cards.
7. Stay Out of Bad Debt
Debt means you owe someone money, and if anything you NEVER want to owe any-one money.
However, not all debt is necessarily bad debt.
So, what is bad debt?
Bad debt is any debt that’s acquired through purchasing something that’s going to lose value and generate zero revenue.
Some examples of bad debt would be credit card debt or an auto loan.
What is good debt?
Some people will say there’s no such thing as good debt, and while I mostly agree, I also can’t deny that some debt can be beneficial in the right circumstances.
For example, if you are going to take out a loan to purchase something that will benefit you financially in the future, I’d say that debt is a lot more beneficial than credit card debt.
Good debt usually has lower interest rates as well. Here are a few examples:
Student loans
Since student loans typically have a very low-interest rate and going to school can increase your pay as an employee in the future, student loans can be considered good debt.
However, if you’re going to college just because you don’t know what else to do after high school, that’s probably the wrong move. You could end up wasting a lot of money studying a field that you don’t even enjoy. Then you’ll be stuck working a job you hate to pay off your student loans. Not fun.
Mortgage
This one’s a tricky one, but mortgages are generally considered good debt. They are usually long-term loans with low interest rates, so you’ll still have money freed up for investments and such. The interest from mortgages is also tax deductible, so that’s a bonus.
In the end, it’s up to you to decide whether purchasing a home is the right move, as the value of a house will not always rise as some people think. You’ll also have to add in the expenses of property tax, utilities, and home insurance.
Business Debt
There are a lot of online business ideas you can start on the cheap these days, but a small investment can also go a long way in certain endeavors. Business loans are considered good debt because they are put towards something with the goal of increasing your net worth.
8. Have an Emergency Fund
If you lost your job tomorrow would you have enough money to live off while you look for a new one?
If we want to be realistic, emergencies happen all the time. They may not happen to you, but it’s always good to be prepared.
You can’t predict an emergency, but you can prepare for one.
Here are some common financial emergencies:
Job loss
Car problems
House repairs
Natural disaster
Medical or dental expenses
9. Know Your Net Worth
Net worth can seem like a tricky topic, but it’s quite simple. Your net worth is how much money you are worth. If you were to sell everything you own, then pay off everything you owe, how much money would be left?
That’s your net worth.
Here’s what that looks like in equation form:
Net worth = Assets (what you own) – Liabilities (what you owe)
10. Start Investing
Investing is one of the best ways to increase your net worth, but a lot of people stay away from it because they’re scared of losing money. So instead of investing, they keep their money in a savings account. That’s great, and you should have some money in a savings account for emergencies, but the truth is:
Money in a savings account loses value over time.
So, what can you invest in to stay ahead of inflation? Here are some options:
Real estate
Peer-to-peer lending
Exchange traded funds (ETFs)
Stocks
Cryptocurrency (crypto can be volatile, so invest at your own risk)
11. Communicate With Your Significant Other
Notice how I wrote significant other; this financial tip doesn’t just apply to married couples. Money fights can affect any relationship.
The best way to avoid fighting about money with your S/O is to talk to them about it. Remember that you’re a team! You should be talking to each other about your financial goals, and you should set a date once a month to go over your finances together.
The bottom line?
Don’t let money ruin a great relationship.
12. Side Hustle to Make More Money
Are you happy with the amount of money you’re taking home each year? If you’re like most of us, a little bit of extra cash each month could go a long way.
So, why not start a side hustle to supplement your income?
Don’t worry. You don’t have to sacrifice all of your free time to start a successful side hustle. One of the big advantages of side hustling is that you can do it when you want and as much (or as little) as you want.
The best advice I can give you is to start. Use any extra time you can find and make a little bit of progress every day. Soon you’ll be addicted to the side hustle lifestyle.
So, how much money can you really make with a side hustle?
Well, that’s the other awesome thing about side hustling, the income is virtually limitless. Since you’re not getting paid by the hour or a set salary, it’s really up to you to decide how much you want to earn. The more you feed your side hustle, the more it grows.
Take action. Start working on improving your finances today, not tomorrow.
Compiled by Ms. Dikeledi Seoloane on behalf of Matsobanemetja Business Consulting (Pty) Ltd – Registered Accountant and Certified Tax Practitioner.
Matsobanemetja Business Consulting (Pty) Ltd is your accounting partner that you can entrust with the bookkeping function, right up to financial reporting. We helps you keep accurate records of your business finances.
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Small amounts saved daily add up to huge investments in the end.
– Margo Vader
Matsobanemetja Business Consulting Pty Ltd 