Financial freedom is about staying the course

If, like me, you’re working hard to provide for your family, and making sacrifices you never thought you would need to make (who knew Jimmy Choos would be so expensive!), you may find it refreshing to be spontaneous at times. Taking a quick, unplanned trip, buying that new sofa, or arranging a big birthday party – after all, we deserve it, right? Especially after two years of Covid-19, and the stress, trauma and sacrifice it has brought.

We feel validated in justifying these feelings to ourselves, but the reality is that the only way to reach financial freedom is to stay the course. In order to secure your future financial freedom, it is important to remain disciplined, stick to your goals, and make appropriate decisions every day.

Making the right choices is not always easy, so where do you start? Well, that is the easy part, you start where you always start, at the beginning! Start where you are, and start with what you have – as long as you start. You need your financial plan to include all of your long-, medium- and short-term goals. This plan should also include what happens to your finances when you die – not only a will, but a detailed plan to guide your family and the executor of your estate to execute your wishes correctly.

Your financial plan should be reviewed with the help of a trusted financial adviser – at least once a year, or whenever there are significant events in your life that will impact your financial plan (e.g. purchasing fixed property, getting married, divorce, the birth of a child, or the death of a spouse – to name but a few).

Here are a few steps to consider when setting financial goals:
1. Figure out what really matters to you. From the practical non-negotiables to the dreams, put everything on the table to decide where to start.
2. Determine timelines to achieving your objectives - the ‘quick wins’, the goals that will take a bit of time, and those that will only be achieved using a long-term strategy.
3. Apply a SMART goal strategy – i.e. make sure your goals are Specific, Measurable, Achievable, Relevant, and Time-bound.
4. Create a realistic budget. Get a proper grip on your cash flow. This step alone will potentially open your eyes to a totally different picture to what you expected to see.
5. If you set up a very tough, realistic budget and stick to it, you should start to see a surplus. Even if it is very small, it is a start! Ensure that whatever the surplus, it is moved automatically into a separate account. Now you can start addressing the ‘quick wins’ like an emergency fund. This is where you need to stick to the plan, and don’t deviate from it! The emergency fund will be worth the effort, providing you with a financial safety net.
6. You need to monitor your progress. If the plan is not working, revisit it and amend it until it does. This is where a financial adviser can provide valuable advice and guidance.

Here is an example of how a small change can make a big difference. A colleague of mine recently shared a personal experience with me. Friday night is pizza night in their home. Everyone deserves a night off from cooking, so no one is complaining, and they are supporting their local Italian restaurant. One evening their daughter suggested making their own pizzas from scratch, which they started doing using ingredients they already had in the house. This has now become part of their regular Friday routine. Granted, Mom doesn’t quite get the night off, but it is lots of fun, they spend quality time together as a family, and look what it did to their budget:

Making pizzas (rather than buying from the restaurant) resulted in a cost saving of R240 per week (after costs for ingredients), which is a saving of R12 480 per year. Putting that amount into a Tax-Free Savings Account with a growth rate of 6%, doing so until their daughter is 18 (she is five now), and assuming an escalation rate of 8%, the total value of the investment after 13 years will be R392 000! That is equivalent to having the buying power of R132 000 in today’s terms, which should be enough for the first year of their daughter’s tertiary tuition fees.

Whenever I am tempted to choose spending on luxuries rather than saving for the future, I think back to examples like this one and re-access how even a small change can help us reach such important financial goals – such as a child’s education!

Each day brings a choice between the pain of discipline and the pain of regret.