Own your Financial Freedom

First National Bank (FNB) recently announced that it takes an average of five days for a middle-income consumer (earning between R180 000 – R500 000 per annum) to spend up to 80% of their monthly salary. It is also estimated that only 6% of the 61.93 million South Africans will be able to retire comfortably.

As frightening as these statistics are, the sad reality is that so many of us were not taught financial literacy while growing up. It was only after receiving our first working salary that we even thought about budgeting. We either watched videos from financial gurus on social media or were in the financial industry itself in order for us to learn all the financial nuances that would ultimately propel us into financial freedom.

Along with learning financial literacy, many of us have also had to catch up from growing up underprivileged. Some of us were the first in our families to buy cars, the first to buy homes or even the first to go to university, which may have meant that we had to take out student loans to pay for our studies. We did not understand how to leverage debt in our favour, or even how to simply start planning our financial journey.

What all of this means is that we need to understand that a one-size-fits-all savings and investment approach to financial literacy and financial freedom is unlikely to work. We also need to realize that financial freedom has a different meaning to most people. To some, it may be paying off their car and home loans, while to others it may mean being able to buy Twitter for $44 billion.

The journey to financial freedom will require discipline and hard work. It will require realizing that you may need to live a specific lifestyle for the next few years to reach some sort of financial stability.

Some steps that you may follow to help you on your journey to financial freedom are:

• Define what financial freedom means to you. You need to establish what your definition of financial freedom is. Do you only wish to pay off all your current debt, or do you wish to have the ability to absorb any financial shock, regardless of what it may be? Establishing this first will provide guidance to set up your budget and navigating your journey to your version of financial freedom.
• Pay off your debt. Start by writing down all the current debt you need to pay off. Then add extra funds into your smallest debt first, to ensure that one gets paid off as soon as possible. Even an extra R50 will go a long way. Once that debt is paid, take the funds you were putting toward the first debt payment into the next smallest debt payment and create a “snowball” effect until all your debt is paid off.
• Start an Emergency Fund. Start by putting aside a little bit each month towards an Emergency Fund to ensure that should an emergency arise, you can fund this without having to cut into your funds for your living expenses (your monthly petrol or food budget).
• Save as much as you can. Once you have a stable Emergency Fund, start your savings and investment portfolio. Building a decent savings portfolio will ensure that you always have enough funds to have control over your daily and monthly expenses.
• Live below your means. The biggest mistake people tend to make, is that when they receive a pay raise, their lifestyle increases too. We do this without taking inflation into account or hikes in interest rates, food and petrol. Try your utmost best to ensure that when your salary increases, your lifestyle remains constant until you can afford to increase it.

To effectively plan your journey, the best thing you can do is have your financial adviser assist you with a financial plan that is distinctive to your needs. They will be sure to consider your unique financial goals and current circumstances and are able to navigate any biases from the markets. It is never too late to start your journey to generational wealth.