Eight months ago, Tumi — a character who represents the financial reality, as well as the hopes and dreams of many of our readers — sought some badly needed financial advice. She had recently had her first child, which had a significant impact on her priorities. Although she earned a good salary, she spent more than she earned and wanted to start being disciplined with her money to provide for her daughter’s future. Sanlam financial advisers gave Tumi advice that has turned her financial situation around in just eight months.
In October last year, Tumi had a take-home pay of R11Â 200, but her monthly expenses were R12Â 100 — each month Tumi was going R900 deeper into debt. As a result she owed R5Â 000 on her credit card and R5Â 000 on her store cards. Her contribution to the mortgage bond was R3Â 000 a month and she had car repayments of R2Â 000 a month. Tumi had no savings and no risk cover. Basically, if something had happened to her and she was unable to work, she would have been in serious trouble. Although Tumi’s husband would have been able to provide some basic financial support to keep food on the table, Tumi’s debts would not have been paid and they would not have been able to provide for their daughter’s education.
The first move was to start living within her means. Tumi ate out twice a week and spent R1Â 000 a month on clothes and shoes. By cutting back on her entertainment and clothing, she saved R800. She began monitoring her cellphone calls more vigilantly and saved R270 on her cellphone bill. She was now living within her means and had a bit extra to tackle short-term store and credit card debt. Tumi stopped using her credit card and store cards and used money actually in her bank account for clothes and grocery purchases. She was able to pay an extra R170 towards her monthly card repayments. This meant she was set to pay off the debt by May, at which stage she would have R670 extra cash in her pocket to invest. Tumi also renegotiated her bond rate for a 50 basis point cut and now pays 1,75% below prime. This helped to offset the increase in the interest rates and Tumi and her husband were able to absorb the unexpected rates hike.
Tumi was very fortunate to receive a 13th cheque in December and used R5Â 000 to settle her credit card debt. This immediately allowed her to budget R500 extra for savings. Because money is not just for saving but also for enjoying, and as she had stuck to her monthly budget and used some of the bonus to get rid of debt, she spoilt herself and her family during the December holidays with the remainder of her bonus.
Tumi was now in a position to evaluate her and her family’s long-term financial needs. Her first concern was what would happen to her family if she died, was disabled or fell ill. Tumi took out life cover for R150 a month, which would pay out R330Â 000 in the event of death, disability or dread disease. She took out an education policy for R150 a month that would either provide for her daughter’s education should she die or pay out about R100Â 000 in 15 years’ time. She also started a savings plan of R585 a month for her daughter’s high school education.
Tumi received a 9% salary increase, which she used to increase her contributions to her pension fund as it was not adequate to meet her retirement needs. According to Sanlam, because Tumi had cashed in her previous pension when moving jobs, she was not providing enough for her retirement. When Tumi’s store card debt is paid off this month, she will use the money she was paying into the cards to invest an additional R585 a month for her retirement.
Finally, Tumi decided to buy a new car as the one she had was fully paid off and she wanted one with better safety features. Tumi discovered that, by purchasing a year-old car as opposed to exactly the same model new, she would cut her monthly instalments by R900 a month — she would meet her needs affordably.
In eight months, Tumi has moved from being in an escalating debt situation to having risk cover, savings for her retirement and her daughter’s education and no short-term debt. She still eats out once a week and buys herself a pair of shoes or an item of clothing every month. Tumi has found the balance between enjoying her money and making it work for her.