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Now that Januworry is over, it is time to fix your money mindset and improve your relationship with your finances. After six weeks of holding their breath until their next pay landed in their accounts, consumers can breathe a bit easier, but now is the time to plan for financial freedom.
Financial freedom is often touted as a universal goal worth aspiring towards but Nirdev Desai, head of sales at PSG Wealth, says the reality is that what financial freedom really means, is fairly relative.
“For some people, it means being debt-free and for others, it means having enough disposable income to cover unexpected events and life circumstances. Defining what financial freedom means to you is arguably the most important step towards developing a healthy relationship with money.”
Desai points out there is no clear connection between having money and being happy. “Look at stories of people who report winning the lottery, only to be met with tragic consequences and emotional damage.”
He says author and philosopher Ayn Rand put it this way: “Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.”
“As we know, becoming a responsible driver who can make informed decisions and sound judgements takes practice and guidance.”
That is why financial planners are important because they can provide invaluable advice that can ultimately help co-craft your financial plan to suit your specific needs.
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“More often than not, people who have not reached a place of financial stability experience fear around making enough money. On the other hand, people who have money seem to fear losing what they have. Ironically, both these scenarios tend to drive behaviour that leans towards ‘stashing money under a mattress,’ rather than putting money to work for you.”
Desai says fear is one of the most common pitfalls in personal financial management and is something that can be counteracted by implementing a solid and well-informed financial plan. Once that plan has been created, sticking to it takes a generous amount of discipline and consistency, he warns.
“Some of the fundamental principles needed to put this plan into action include diligently tracking your spending and not allowing impulsive decisions or the need for instant gratification to detract from your focus on the long-term goals that have been set.”
In addition, he says, consistently paying bills on time is essential to maintaining a clear overview of your responsibilities and its alignment with your broader financial plan. “This will also ensure that you maintain a healthy credit score, which will have positive implications in future with getting access to credit and other financial products.”
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Cashflow is one of the greatest challenges in a business and for individuals, it is just as important, Desai points out. “Therefore, apart from tracking spending and being able to meet financial obligations, it is also important to prioritise saving by saving diligently towards establishing an emergency fund that can cover unforeseen expenses, as well as choosing the right investment product to maximise your savings in line with your retirement goals.”
When you start this journey and when you set out to save, it is crucial to structure your investments in the smartest way possible, he says. “Products that offer tax incentives, such as retirement annuities and tax-free investment vehicles, are two prime examples where government effectively provides a boost to savers through various tax incentives and/or by not levying tax on the growth in a portfolio.
By saving in these products, investors are essentially positioned to reach their goals more easily than they would when saving an alternative product that does not enjoy such tax advantages, Desai says.
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“Effective money management is never a one-size-fits-all arrangement. Rather, every individual’s financial plan and the course of action that they embark upon to achieve their goals, will differ and needs to be tailored to their individual needs.
“The journey of gaining control over your money, rather than allowing it to control you, begins with one simple step: reaching out to an adviser, asking for help and being open to making the small changes that will ultimately make a big difference.”
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