6 tips for revamping your finances

Most of us start the New Year with, at least, hopes for a better year, some with a list of resolutions, and a smart few with a practical, step-by-step plan for ensuring a better year.

 

Getting your finances sorted

Getting your finances sorted

 

Draw up a monthly budget, or revise your budget, to factor in the impact of the interest rate hike.

 

These hopes, resolutions and plans inevitably include financial goals, such as paying off debt, saving more or saving up for a dream, explains Dr Koos du Toit, chief executive officer of P3 Investment Group.  

 

Du Toit explains that the surprise interest rate hike of 0.5 percent last month will certainly put a damper on many South Africans’ hopes, resolutions and plans for 2014.  “It will increase home loan repayments, vehicle finance instalments and the interest – and therefore the monthly repayments – on all short-term debts, such as credit cards, personal loans and retail accounts.  “More of a concern is that some economists have warned that a rate hike could tip the economy into a recession,” he says.

So what can consumers do to counter the impact of the rate hike on their plans for 2014? He offers tips for revising your financial resolutions for 2014:

 

1. Draw up a budget

Draw up a monthly budget, or revise your budget, to factor in the impact of the interest rate hike.

Ruthlessly cull unnecessary expenses to ensure that you can afford the necessities, such as bond repayments, vehicle finance instalments and debt repayments, given the higher interest rate. If you cannot afford all your repayments, take immediate action. Speak to your credit providers to make a repayment plan or contact a debt counsellor to assist you.

 

2. Save

If you have culled your expenses to the minimum, save up any money you have left after covering the essential expenses, even if it is only R200 a month, to build up a reserve fund for unexpected emergencies, whether a medical emergency, or a vehicle or major appliance breakdown.

 

3. Annihilate debt

Avoid making new debt at all costs. Do not open new credit facilities and do not buy anything on your existing credit facilities. The higher the interest rate, the more it costs you to borrow money and the higher the monthly repayments.

 

Once you have paid off your short-term, high interest rate debts, pay extra money into your home loan each month, not only to build up a buffer against future interest rate increases but also to ensure you save thousands of rands on interest and reduce the number years it will take to repay the loan.

The higher interest rate means that your monthly debt repayments will increase. Make it an absolute priority to pay off your existing debt as fast as possible, starting with the highest interest rate debt first.

 

Even a payment of just R100 a month extra on an account will help you pay it off much faster.

 

Once one debt has been settled, use the monthly repayment you were paying on it to pay into the next debt as an extra payment each month. In this way, you can eradicate debt – and the crippling interest on it – from your life, much quicker than you imagine. 

 

5. Pay any extra money into your home loan

Once you have paid off your short-term, high interest rate debts, pay extra money into your home loan each month, not only to build up a buffer against future interest rate increases but also to ensure you save thousands of rands on interest and reduce the number years it will take to repay the loan.

 

6. Plan your financial future

Once you have your current financial situation under firm and tight control, take the time and make the effort to plan your financial future.  Decide what you want to achieve financially and set goals with timelines, for example, saving up for the kids’ education within 10 years or retiring at age 65 with a defined monthly income. Then start looking for smart ways to reach your financial goals.  “There is hope for financial freedom, for wealth and for getting the life you want – even in the face of an interest rate hike,” adds Du Toit.

 

 

 

- Courtesy of Property 24 articles

 


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