20/06/2017 08:16 BST | Updated 21/06/2017 12:05 BST

The Economy Is Junk Rated, But Your Finances Don’t Have To Be

Ride out the recession by giving your bank balance a cash cushion.

Gallo Images

1. Say Goodbye To Debt

South Africans are indebted to the tune of R1.6 trillion, according to the National Credit Regulator. And, with the current economic downturn, this amount could increase. While there is such a thing as 'good debt' (think about your home loan), many people are crippled by bad debt like store and credit cards, overdrafts, personal and payday loans. The more we spend on paying debts – and the longer we take to pay them down – the less money we're saving. 'You find that people are living in overdraft and depending on their credit card, and before you know it, they're stuck in a debt trap,' says Wealth Coach Samke Mhlongo. One way to navigate your way out of the trap is to pay more than the minimum requirement on your debts. That way, you're actually making a dent into your debt instead of only paying the interest that has built up.

2. Build A Realistic Budget

How do you know what your financial future has in store if you don't create a plan? The 'B-word' might not be sexy, but creating a realistic budget is a sure fire way of ensuring that your finances work for you. 'Make a list of critical ("necessary-to-haves") and trivial ("nice-to-haves") expenses and only spend on the trivial once you have taken care of the critical expenses,' says Errol Meyer, Head of Advisory at Standard Bank Financial Consultancy. 'Critical expenses include groceries, medical aid coverage and school fees, for example. Trivial expenses would be things like a visit to the nail salon, satellite TV and take-away meals.' One way to start, says Mhlongo is to ask yourself: 'What's my desired cash flow? What can I do without?' Also remember to budget for your monthly treats, so you're not caught unawares when you want that occasional luxury item.

3. Save For A Rainy Day

Starting a savings plan can be daunting, especially if you still have debts to pay. But, it's vital to 'pay yourself first' Meyer says. Start with saving a little at a time, and build your way up. Ideally, you should be saving 20% of your income. It's also important to speak to your bank about which savings vehicle works best for you. The savings account you've had since childhood might not be the account that yields a favourable interest rate. Shop around to find a savings product that delivers a return. Also, remember that an emergency cash reserve can help you avoid going into debt, or using your credit card in future. If your car breaks down, you have an unexpected medical expense or your children need something, you can always turn to your savings, instead of getting a loan.

4. Make Sacrifices That Count

'The most common mistake people make is the assumption that your finances will take care of themselves when you make more money. But, more money won't solve your financial problems. The principle holds that how you spend R1 is how you'll spend R1 million. If you squander 100% of R1, you'll do the same with a million,' says Mhlongo. A savings culture and a desire to be frugal can be inculcated at any income level. One way to do that is to prioritise the luxuries you want, and drop those you don't need. List all your discretionary spending and find out where you can cut back – after all, do you need the daily cappuccino, weekly nail appointment, weekly fine dining meal AND the monthly shopping spree?

5. Stay On Course

Once you have the basics down, it's important to remain disciplined to work towards your financial goals. One way to stay on track is to reward yourself for sticking to your plan. After all, frugality isn't always fun. When it comes to rewards, we're not talking about splurging on a new luxury vehicle or taking an overseas trip. Instead, create small rewards for yourself and your family for remaining on track financially. Lunch or dinner at a good restaurant, a family day trip, or even a spa outing are all good rewards for staying on pace. As Mhlongo says, it's important to remain motivated and inspired about your future financial freedom. 'Fear is a weak source of inspiration,' she says. 'We need to communicate to people that your life can be so much better when you're financially free. Good financial behaviour is inspiring and aspirational.'

Bonus: Here's How To Get Help

Meyer says a plan is essential for getting your finances in order. 'A financial planner will assist you to compile a list of all your assets and liabilities, and your spending habits. From this, he or she can professionally evaluate your unique financial situation and, thus, assist you to prioritise your lifestyle goals, paying due regard to your circumstances.' Speak to your bank about finding a professional financial planner who can help you understand your money matters. 'Once you have secured the services of a financial planner, you can put a plan unique to you and your family into place and take the journey to achieve your, and your family's lifestyle goals,' says Meyer.

Need a cushion for your cash? Invest in a Fixed Deposit with Standard Bank today.