The impact of COVID and especially the lockdowns implemented by Government in 2020 and 2021 have caused a severe disruption to the economy. In addition, they have changed the way we live, work, and spend our money. Some of these changes might only be temporary but many of us have formed new money habits. Some of these new habits could mean a faster path to financial freedom.
Here are some of my top tips for managing your money.
1) Get a Money Buddy
Studies show that we are more effective at sticking to our plans when we work in groups. Think of running or cycling clubs or stokvels. As a runner, I know that it motivates me knowing that my friends are going to be waiting for me at 5:30 in the morning for our daily runs. This is really motivating in winter when it is cold, dark and sometimes freezing outside. The same source of group motivation could be used for your money goals. I challenge you to start a stokvel with friends or family to improve your money habits. A stokvel doesn’t just need to be about saving, it could be like a training group where you set budgeting or investment goals and your group helps to keep you on the path to financial freedom. This doesn’t mean you need to share all your financial secrets with your friends but you can tell them about your goals and then arrange monthly meetings where you each talk about your progress, your struggles and your dreams. Having people you trust and respect hold you to account for your goals is a very powerful source of motivation.
2) Set up a realistic budget
This is not rocket science, but it is the real secret to financial freedom. Those who are in a good financial position can tell you how they spend their money and they always ensure that they have space in the budget for monthly savings. If you are bad with administration stuff, you can always use an app like 22Seven, it is very useful and it’s free!
3) Develop a debt game plan
Most South Africans have too much debt. I think debt is a weapon of wealth destruction, so you need to sort out your debts if you want to reach financial freedom. That means you need a game plan for your debt. Start by paying off the debt with the highest interest rate first because that is your most expensive debt. Once you have paid this off, focus on the next most expensive debt and carry on with this process until you are debt free and ready to save!
4) Diarise your first holiday
Life is not only about sacrifice. You need to have fun goals to keep you motivated. We can improve our lives when we spend money on experiences, but we do not improve our lives by spending money on material things! Put your next holiday in the diary, fill in your leave form and then start a plan for how you are going to save for the holiday now. Saving for something fun, while also saving for the long term, helps you to make the necessary sacrifices by avoiding spending on the things you don’t need.
5) Stop spending money on one useless item in 2021
Lockdown taught us many money lessons. For instance, that expensive car you are paying off every month was not really that helpful in lockdown, but it still cost you money and lost value every day. What about those suits, handbags, shoes, or expensive watches? Did they really make your life better? If you did not derive value from them, why would you start spending on them again when lockdowns are over?
MY TOP TIP
Get an emergency fund! We have all learned that a financial crisis can hit anyone at any time. That is the biggest financial lesson of COVID and we need to remember it forever. If you want to protect yourself financially from the next disaster, you need an emergency fund that can get you through the bad times. I like to keep 3 to 6 months’ worth of my monthly expenses in a money market account that is always available for an emergency. This is not my holiday fund or my new iPhone fund, it is there to pay for some nasty financial shock.
Warren Ingram is the host of the Honest Money podcast. Follow him on @warreningram or find the podcast on @honestmoneypod.
By Warren Ingram
Originally published on TRR
