10 Financial New Year's resolutions

The New Year is a time when many people make resolutions to live a better and healthier life. This year, rather than the normal healthy eating or getting fit resolutions, try looking after your financial wealth.
 
Salem Dyafta, brand manager for consumer at TransUnion, South Africa’s largest credit bureau, says: “New Year is the ideal time for consumers to appraise their current financial situation and make goals for where they want to be at the end of 2016. However, sticking to New Year resolutions and achieving one’s financial goals will require determination, planning and hard work.”
 
We have ten resolutions and tips on how to make them work that should help you stick with them.
 
1.       Create a monthly budget and stick to it
TransUnion reveals that to develop a budget, you need to determine your current spending habits. Once you know this, create a budget, this will help you see how much disposable income you have and help you spend it more wisely.
 
Bhavesh Naran, marketing co-ordinator for IDM (Intelligent Debt Management) explain: “A budget is a simple plan that can help you track your money. It is very important that you know where your money is going every month so that you know how much you can afford to spend. Start by adding all your monthly expenses (even the little things) and work out how much you need every month for your expenses and stick to your budget. Discipline is key to this exercise, but if done correctly, can be financially rewarding.”
 
TransUnion offers the following tips to help you build a monthly budget:

• List all of your active account and loan information, and compare this to your credit report to ensure that all information is accurate.
• Write down your monthly income.
• List your monthly expenses, being sure not to underestimate anything. This will include, petrol, transport, interest, food, general household expenses (which are likely to increase in coming months).
• From this you can calculate your budget.
• Once you see where all of your money is going, try to reduce your monthly expenses to allow you to save money each month. To do this, you need to decide what the “must haves” and the “nice to haves” are. According to TransUnion you should try to save at least ten percent of your income each month.
• Try to reduce the number of nice to have expenses, such as eating out less often. Once you have done this, see where you can save money on the must haves. This can include carpooling, and turning off lights when you leave a room.
• Any savings that you are able to make put towards servicing your debt, starting with the debts that charge the highest interest rates.

 
2.       Avoid taking on new debt
One of the best ways to manage your debt is to avoid taking on more of it. Naransays: “If you are really serious about cutting your debt to size, you need to get serious about staying in control of your spending now more than ever.”
 
Roland Pascal van Alphen, regional head of The Wealth Corporation, adds: “Enjoying and funding a lavish lifestyle is all too easy and all too tempting. Our culture encourages high-end consumption habits and the credit to pay for this is too readily accessible. Trying to keep up with the Joneses is one of the easiest and most costly mistakes you can make. The choice between spending on nice-to-haves now and saving for need-to-haves later is one which should not be taken as lightly as we do.”
 
Jeannine Naudé Viljoen, executive manager of the Credit Bureau Association (CBA), agrees emphasising that you should never “bite off more than you can chew” when it comes to credit. She points out that a common rule of thumb is that your total credit repayments should never be more than 20 to 30 percent of your income. If you are already struggling to make your repayments, do not take on more debt.
 
“Speak to your credit providers about your repayment plan, rather than missing payments. Never lie about your income or expenses on a credit application,” advises Viljoen.
 
3.       Pay off outstanding debt
Van Alphen stresses that when it comes to debt it is important to pay it off as soon as you can. He states: “Credit card debt usually incurs the highest interest rates and so you should prioritise paying off this debt first. The interest charged on car repayments is traditionally higher than that charged on home loans and for this reason it is a good idea to pay off your car more quickly than paying off your home.”
 
TransUnion offers some tips that consumers should avoid doing when it comes to dealing with their debt:

• Do not ignore letters of demand from angry creditors. They won’t go away.
• Do not juggle your finances so that you only pay the outstanding amount on the most pressing accounts.
• Do not borrow more money to pay existing debt.
• Do not max out one credit card to pay another
• Do not fool yourself into thinking the situation will straighten itself out on its own.

 
4.       Pay accounts early
This points relates in part to the previous two points. When it comes to managing your debt, it is best to pay off your accounts early, to avoid missed or late payments. Naran highlights that the earlier you make the payment, the more you will save, pointing out that most banks offer interest free credit if it is paid before a certain time.
 
5.       Check your credit report regularly
Dyafta reveals that the first step to having a healthy credit profile is to recognise your bad financial habits. These can include late or missed payments, which will be reflected on your credit report and may affect your access to future or additional credit.
 
Viljoen notes that your credit report is a reflection of all accounts in your name and how well you pay them. Among the information included on the report is your credit score, your personal information (your full names, ID number and address), your property information, any judgments or court orders against you, and all enquiries that have been made on your profile.
 
“Regular credit report check-ups may also help you guard against identity theft. You are entitled to one free credit report from every credit bureau every year,” added Dyafta.
 
Here is a list of some of the credit bureaus in South Africa:

• Compuscan: 0861 514 131, www.mycreditcheck.co.za;
• Consumer Profile Bureau: 010 590 9505, www.cpbonline.co.za;
• Experian: 0861 105 665, www.creditexpert.co.za;
• TransUnion: 0861 482 482, www.mytransunion.co.za;
• XDS: 0860 937 000, www.credit4life.co.za.

 
6.       Know your credit score
Related to the previous point, it is important to know what your credit score is. By knowing your credit score, it will also help you see which areas of your credit profile need improving, such as late or missed payments, if any of your accounts are in arrears and any other bad, or good, credit behaviour. It will also allow you to see if you are in a position to access more credit should you need to.
 
For more information on credit scores, click here.
 
7.       Use coupons when shopping
To help save money when shopping, make use of coupons or store loyalty cards. Naran says: “You will be amazed at how much you can save when it all adds up. Even if you save R1, it’s more than nothing!”
 
A number of stores offer loyalty or reward cards to their customers which offer anything from discounts on selected goods, to vouchers and coupons. Among the stores that offer these are: Woolworths WRewards, Pick n Pay Smart Shopper, Clicks Club Card, and Edgars Thank U card, among others.
 
8.       Cancel unnecessary subscriptions
We all have our weakness for something that you don’t really need but love to buy, and sometimes don’t use afterwards. A magazine or other monthly subscription is one such thing. Unless you sit down and read the magazine every month, or make use of your TV subscription service regularly, you might be wasting money.
 
Naran points out: “Monthly subscriptions can be costly even when you are utilising it to the fullest. You can easily save yourself almost R1000 every month by just cancelling subscriptions that you hardly even use. Trust me, you won’t even miss it.”
 
9.       Save and invest
Saving and investing is often a last thought, with many people claiming that they do not have enough money to save. However, Naran notes: “Often we spend money because it’s in our pocket and our impulses take over. By opening a savings account, you can deposit a small amount of money every month. By the end of the year, you would have saved up a nice little something that you wouldn’t normally have had. The money can then be used for anything you wish and the best part is that it does not affect your monthly budget.”
 
Another important aspect to keep in mind is saving for your retirement. The cost of living is continually increasing, which means that those starting out in the working world today will need to save more towards their retirement than their parents did.
 
Van Alphen highlights: “We all know that we should start saving for retirement from our first pay cheque, but not many of us do. The opportunity cost of not doing so is remarkably high and it is something that you can never recoup.
 
“While such priorities as saving for a down payment, paying off student loan debt and saving for your child’s education are all good goals, the price to be paid should not be deferring saving for your retirement.”
 
10.   Don’t buy new where you don’t have to
Who doesn’t love getting something new right out of the box or off the showroom floor? However, this is not always financially wise. For example, if you are to purchase a brand new car on finance, the moment you drive the car off the showroom floor it is worth less than what you are paying for it, and this depreciation continues the entire time you own the vehicle. In the end you end up paying more for the car than it is worth.
 
Unlike what many people may believe, a vehicle is not an asset in the way that a property would be, as it depreciates in worth, while generally a property with increase in worth over the long term.
 
Van Alphen states: “Society is preoccupied with “new” and “next” to the point where buying second hand can be frowned upon. The fact is that buying second hand can save you a significant amount over the course of your life and this is particularly true when it comes to costly, depreciating assets such as cars.
 
“If you do intend purchasing the latest model of your choice in 2016, make sure you consider not just the affordability of the monthly instalments, but the interest rates charged over the period of the loan as well. It is important that you know exactly what you are paying in total and that you are comfortable with that figure.”
 
Discipline is the key to achieving any goal that you set yourself. You can achieve even a few of these financial New Year’s resolutions if you just put your mind to it.