OPINION: Start the New Year in control of your finances

It’s the silly season, and budgeting usually goes out of the window. Make one of your New Year’s resolutions a commitment to planning your finances wisely.

1. Draw up a budget and stick to it.

Always record where and how you spend your money. This way, you can cut out unnecessary spending and kick those habits that are costing you money such as smoking and drinking.

2. Pay off your debt and manage your expenses.

A high debt burden severely limits the ability to build your wealth. Your income should be directed to three broad buckets:

• Current expenses – paying for things you consume now

• Debt service – paying for things consumed in the past, savings/pension

• Putting away money for things you will need

When the majority of your income is directed towards expenses and servicing debt, it is almost impossible to invest and build a lasting legacy.

3. Avoid unnecessary debt.

Become more responsible with debt. Buying new clothes or electronics may be fun but remember to factor in the hidden cost of debt. You may want to downgrade to a car that you can pay off easily and avoid high balloon payments. The repayments may seem manageable in the beginning, however this may have a negative impact at the end of the contract as the consumer would need to either settle or refinance the residual amount.

4. Pay for essential cover and save.

We are constantly exposed to hazards we have little or no control over. A bad driver could cause you to be involved in a car accident. You could be diagnosed with a critical illness. You may become disabled leaving you unable to work. These are concerns that we face and try as we might, we can never tell when or if these misfortunes will befall us. Therefore, make sure you have the financial protection you need. Your expenses may have gone up but this does not change individual risks, circumstances and long-term objectives. Appropriate provision is as essential.

5. Review your insurance cover.

Check that all insurance policies are up to date. Many policy holders take policies, file away the paperwork and never look at them again. Meet with your financial adviser to make sure you are still covered for what you need. Use the opportunity to update your banking details, discuss other needs and do a general check on all policies. If you cancel some policies prior to the correct time, you may incur penalties as well as tax implications.

Boitumelo Mothoagae is a financial adviser and head of Retention at financial service provider Liberty Life.