Living a debt-free life is possible and anyone can create wealth. So why do we fall back on bad habits that undermine our best efforts? Sibiya says it’s likely that we set unrealistic goals. We can’t undo three years’ overspending in a month, so we need to plan how we’re going to free ourselves of debt.
Plan! Plan! Plan!
Planning will give you a realistic outlook on your affordability, which could assist you not to overspend. The easiest way to do this is draw up a budget. In your budget you should include:
- Fixed expenses — items on your budget that don’t change each month, such as school fees, loan payments and so on.
- Variable expenses — items on your budget that change from month to month, such as water and electricity payments.
- Discretionary costs — items include entertainment, takeaways and so on.
If you don’t know how much you spend each month, put all your receipts in a shoebox or keep a logbook for your expenses. At the end of the month, add them up, then subtract the total from your income.
Me! Me! Me!
Maybe one of the mistakes we make when we get paid is that we always think about our debt and never about ourselves. When you get paid, pay yourself first. Say thank-you to “me” before thanking your creditors for giving you credit to have all your wants and needs. Pay yourself by putting a portion away or by buying something nice for yourself with cash (don’t use credit).
Get rid of that debt
If you have extra cash use it to increase your instalments so that you pay less interest and pay off your debt quicker. Don’t take things on credit that you should be paying cash for. Never owe more on your credit card than you can afford to pay off each month. Wherever possible, pay off the total amount each month, not just the minimum amount payable. If you have too much debt you will spend all your money paying it off and not having any left to buy the things you really need.
Designer clothes or not? That is the question
When you live beyond your means, you’re prone to borrowing to make ends meet. Learn to distinguish between needs (shelter, food) and wants (designer clothes, movie tickets). Learn to save up for the wants. A good way to break the credit habit is this: every time you want to buy that designer pair of jeans, say to yourself, “If I can’t pay cash for it, I don’t really need it.” Repeat this as a mantra until it’s second nature to say it.
Have financial goals
If you just continue to earn money and spend it as you get it, you will never be able to afford the larger (and more expensive) things you want in life. If you want to buy a car, you have to have a plan in place to save up for the deposit. If you need to pay school fees, it’s time to cut back on those takeaways and fancy clothes. Most banks have savings and fixed accounts where you can put in as little as R100 a month. Most of these accounts earn good interest — so the more you put in, the more your money grows.
Make your bank your friend
Having a bank account that suits your lifestyle is a win. Do you know if you have the right bank account for your banking behaviour? Speak to a bank consultant who can make sure you have the best account to suit your transaction needs. You may find that there are cheaper options and better ways of saving. Some banks offer free services — find out what these are. A good relationship with your bank goes a long way towards helping you attain your financial goals.
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