You work hard for your money so use it wisely.
Whether you earn R10 000 or a R100 000 per month the basic objective in your financial planning is to be able to maintain the standard of living that you have accustomed yourself to no matter what life changing event comes your way. It could be a death, disablement, marriage, divorce, retirement.
Allocate 30% of your income to provisions for the maintenance of your lifestyle.
This includes medical aid, insurance and investments. These provisions provide safety nets should you face a life changing event. They should be able to provide sufficient financial support to maintain your monthly needs.
The investments should initially aim for the short term to build up enough to cover your monthly expenses for 6 months.
A money market account is ideal for this provision. Once in place, you should then allocate your savings to the medium-term (5 years).
A super place to invest is a tax-free savings account. You could also consider unit trusts and exchange traded funds.
Now your plan is developing. You have insured yourself and your assets for any unforeseen expenses and have cash and investments in place for the next 5 years.
You will have funds in place for funds a deposit on cars, holidays, emergencies….even if you are retrenched you can carry yourself for 6 moths.
If you need to buy a house or car you are well positioned financially to afford it.
The cost of your debt should ideally be below 30% of your income. So your repayments on your car and house should not exceed 30% of your earnings.
Paying off this debt sooner than later will provide you with more disposable income to either save more of or improve your standard of living. As long as you have set aside your 30% for provisions you can do what you want to with the rest.
Using your income wisely will give you peace of mind which is the ultimate benefit of a sound financial plan.
Listen to the audio below for more information...
Read more from Paul Roelofse at www.investforlife.co.za