Last week was the last week to enter the Financial Wellness Challenge.
The winners of that challenge are: Mlamuli Magwaza and Sibongile Makubane. I look forward to my one on one coaching sessions with you both.
Now onto this week’s blog post, which is an interview/article I did for a magazine on saving and applying for bank loans:
1. What are your top five tips for saving money in 2014?
i. Save and invest 10% of your gross salary for retirement
Pay 10% of your gross income towards your retirement plan. It’s tax deductible, which decreases the amount of tax you pay on your salary.
ii. Create a budget
List all your income and expenses and subtract your income from your expenses. Save 10% of your net income in a savings account for emergencies. Open up a savings account and make sure you save 10% of your net income every month. This is your emergency fund.
Note: when you create your budget you should align your expenditure with your vision for your future. Eg: if your goal is to move up the career ladder, then part of your budget should be allocated to studies.
iii.Have a fun account in your budget
It’s important to enjoy your income. Add a fun expense for your budget (10% of net income.
iv. Review budget on a weekly basis
A budget is useless unless you stick to it. Take 10 - 15 minutes a week to just review your monthly budget. Observe where you’re falling short and where you can cut unnecessary expenses.
v. Bond with your bank account everyday
Take 5 minutes a day to look at your bank account and your bank statement. Observe whatemotions come up in your body and just sit with them.
This will reprogram your subconscious mind to stop reacting to your finances so you can make different investment decisions
2. What parts of your budget can you cut back on - groceries, medical aid, insurance, accommodation, school fees, clothing, entertainment, etc.?
I think it’s easy to cut back on entertainment when you create a fun account.
My personal suggestion is to let your clothing account fall under your fun account that way you have one less expense.
Personally I don’t think wealth is created by cutting back on your budget but rather by increasing your income and creating multiple streams of income.
Life is about constant expansion and that’s what we should be aiming towards.
3. How do you go about applying for a bank loan?
If I had to apply for a loan I would:
i. Start by assessing my budget and my current debt situation to see if I can afford taking on a bank loan and how much I can afford to pay back on a monthly basis.
ii. Find out your credit rating or if you have been blacklisted – call ITC and Experian and find out what your credit rating is. If your credit rating is low, delay getting a loan until you have it back up to a good level.
iii. Shop around and see what different banks are offering in terms of interest rates and repayment period and shop around for the best option. Note that your own bank may be the best lender because you already have a relationship with them
4. What are some things you should watch out for when applying for a bank loan?
i. The interest rate that the bank is charging
ii. Have a bank account where the bank can debit the monthly repayment
iii. Do you have a regular stream of income to pay back for the loan?
iv. Availability of cash flow: always check how much you will be paying every month and if this fits into your budget and will allow you to keep saving
v. Early termination fees: see what the bank’s stance is on early repayment
vi. Credit life insurance: find out if the bank provides credit life insurance to pay off your loan in the event of your death, disability or retrenchment
vii. Make sure you are emotionally okay about taking on a loan – if it feels stressful, don’t do it, delay it. Your emotions are telling you something
5. What should you make your financial priorities in 2014?
i. Develop multiple streams of income – someone recently told me that job stands for “just over broke”. So go beyond saving and start looking at investments either in stocks or a business
ii. Educate yourself financially – if you take 15 minutes a day to read up on personal finances on blogs or newspapers you will have close to 100 hours of financial education by the end of 12 months
iii. Create a financial vision - your vision should list the amount of debt you want to repay, amount of money you want to save and invest in 12 months and within 5 years savings, and your income target
vi. Create a budget that you will review on a weekly basis (you can use excel or MS Money)
What other ways of saving can you think of?
Are you currently working on creating extra streams of income?
Let me know in the comments section below.