Seven steps to bring you closer to financial freedom

Lizl Budhram

This year on 27 April South Africa celebrated its 24th year of democracy. There’s no doubt that democracy opened a world of opportunities for many South Africans, but it’s also true that political freedom means little to those without economic freedom, says Lizl Budhram, Head of Advice at Old Mutual Personal Finance.

“The World Bank recently reported that South Africa is the most unequal country in the world out of 149 countries surveyed. This shows that there’s much work still to be done,” she says.

The most recent Old Mutual Savings & Investment Monitor found that an alarming 40% of respondents said they have no form of formal retirement savings at all, including pension/provident funds or retirement annuities. Although the majority of South Africans surveyed continue to lack confidence in the economy (with only 34% feeling confident), the latest research findings show that a third (33%) nevertheless believe that the government will take care of them when they are no longer able to take care of themselves – a statistic that has remained fairly constant.

What this means, in effect, is that a large number of South Africans who are currently working will not be financially free when they retire. When you include unemployed South Africans, the number is of course much higher.

Budhram points out that while economic inequality is a pressing social issue that needs to be addressed on many fronts, as an individual you can start to make a difference to your own personal finances by taking seven essential steps. “Following these practical pointers should help to get you on the track to financial freedom,” she says.

1. Start off by drawing up a monthly budget. Knowing where your money is going each month is a critical step. “Ultimately, you need to reach a stage where you are in full control of your finances. Drawing up a budget is a simple process, and basically gives you an instant indication of what you are spending your money on, helping you to identify where you can cut costs. You can also get a personalised automated budget from 22seven, a free money management app by Old Mutual,” says Budhram.
2.  Pay off your most expensive debt. In other words, reduce the debt that costs you the most interest, such as store cards.
3. Now consider your long-term goals. Remember that saving money for retirement is your most important long-term savings. It’s a fact that by starting to save early you have a longer period in which to invest, which means that you can take advantage of compound interest.
4. For the medium term, save something each month towards an emergency fund. This will avoid you having to go into debt if unexpected situations strike. Ideally, emergency savings should be kept in a separate account to discourage you from dipping into it. Instead of saving your money in a savings account at the bank, why not explore the option of investing in a tax free savings account that makes the most of your savings?
5. Protect yourself against loss of income due to death, disability and critical illness. Income protection is a critical part of being financially empowered. You should also consider protection against medical expenses as well as short term insurance for your assets (car, building and household contents).
6. Now you’re ready to plan for short-term goals. Maybe you plan on travelling in the next few months or perhaps you’d like to buy a new car?
7. The final step in a financial plan is to draw up a valid will. Your will is a record of how you want your assets to be distributed among your loved ones and how your liabilities should be paid for. A valid will is an essential element of estate planning and includes everything you own and owe – from property and cars to investments and debts.

“Speak to a financial adviser about developing a financial plan that is relevant to your individual needs, so that you can live within your means today while still providing for your future,” says Budhram. “We are politically empowered, now make sure you are able to enjoy the real freedom that comes with being economically empowered as well.”