steps to financial freedom

R$£R$£ Steps to Financial

Freedom

Financial Guide

How to investigate and monitor the financial aspects of personal and community life

Steps to Financial Freedom has been written for everyone who has ever felt that there is just “too much month left at the end of the money”.

This is a self-help book for all those who are tired of barely surviving from month-end to month-end and do not want to be just another sad statistic when they reach retirement age.

It examines why we overspend, and creates awareness of when and where we are tempted to “blow the budget”.

This is a practical guide to drawing up a budget that actually works and gives you a step-by-step guide to getting yourself out of the debt trap.

You are also given an overview of different investment options that you can investigate in more detail once you have a couple of rands to spare.

Last, but not least, it touches on the very sensitive topic of our mortality and the necessity of estate planning.

This book could not have come at a better time, as it motivates cash-strapped employees to take charge of their financial health and gives them hope for a better future, no matter how much (or little) they earn.

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1

Section 1: Take charge of your finances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Know yourself . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Know your goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Know about money matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Save on bank charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Organise your financial matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Section 2: How to budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Assess your financial situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Cut your expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Draw up an accurate budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Section 3: How to get out of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Debt reduction plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Getting off the blacklist . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

In duplum rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Debt counselling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Section 4: Invest for a brighter future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Save on your home loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Invest in a fixed deposit account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Endowment policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Money Market / Income Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Retirement Annuities (RAs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Unit Trusts and Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Section 5: Wills – take care of your loved ones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Draft your own Will . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Administer a small estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

The costs involved in your estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Claim death benefits in the proper way . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Places to help you . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

ontentsC R$£


By the end of Section 1, you will be able to:• Recognise your spending patterns – the way you usually spend your money

• Identify where you can save on bank charges and other costs

• Find out where to get the best interest rates

• Organise your financial matters

2

ake charge of your financesTSect

ion

1

Money can buy…• a house, but not a home • a position, but not respect

• a bed, but not sleep • medicine, but not health

• a clock, but not time • sex, but not love

• a book, but not knowledge

Do you live from pay day to pay day? Do you run out of money before the end of the month and then have to borrow in order to eat and travel to work?

If you are tired of just surviving from month-end to month-end, read on, as we are going to show you how to take control of your finances .

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Needs, wants and greed• We all have certain basic needs, such as food, clothes, education and a place to

live .

• There are also certain things that we want, like a new car or a smart new leather couch. These are things that we can do without, but they satisfy our desire to live a comfortable lifestyle .

• Sometimes, however, we want much more than we can afford, to satisfy our desire for things like status and respect – for example, an expensive sports car or a mansion on a golf estate . There is nothing wrong with wanting more than we have. It is good to have dreams and goals, as long as we save and invest to get these things .

• On the other hand, if we start getting ourselves into debt to impress others or satisfy our greed, we are heading for the debt trap .

Emotional and impulse spendingWe also need to know when we are tempted to overspend . Is it at the Woolworths checkout where all the sweets and chocolates are displayed close to the till? Is it when we are depressed and think that a new outfit might cheer us up? Or is it that latest game or DVD that we just have to get?

Know yourself The very first thing you need to do when taking control of your finances is to examine how and where you spend your money. In particular, you need to know where and how you overspend .

assetssomething such as property or money that you own

investmentmoney used in a way to earn you more money

The 1 out of a 100 people who are successful money managers

don’t mind being called ‘miserly’ or ‘stingy’ by people

who don’t know better.

miserlygreedy for money and unwilling to spend or share it

debtamount of money outstanding or to be paid

interest ratesare charged or paid for the use of money; often expressed as an annual (yearly) percentage of the principal (the amount lent or borrowed)

stingynot generous in giving or spending money

3


assetssomething such as property or money that you own

investmentmoney used in a way to earn you more money

Know your goals

What are your goals?• Short term, for example to pay off your Edgars account within the next 6 months

• Medium term, for example to save enough for a deposit on your first house

• Long term, for example to pay off your bond in ten years instead of twenty, or to put away enough for a comfortable retirement

To set financial goals, ask yourself the following questions:• How will it affect me and my dependants financially if:

- I die? - I am robbed?

- I fall ill? - The fridge stops working?

- I have an accident? - I want to be rich?

• What returns will I need to achieve my lifestyle goals?

• What returns do I expect to receive?

• What returns am I receiving now?

returnsthe yield or income from investments

5

Complete

Worksheet 2

My goals (pullout

section page 3)

Studies have shown that only 6 out of every 100 people will be able to retire comfortably by the age of 65 .

You may be one of the 94% of the population who live from month-end to month-end and will not be financially independent when they retire . If so, you have probably given up on the dreams and goals of your youth a long time ago .

Perhaps you feel as if you’re in a long, dark tunnel and have no vision or direction. You are just “going with the flow”. In fact, your main aim now is just to make it to the end of the month .

What is your vision?A vision is a picture of the future that makes you feel passionate and committed to achieving it . Think about the last time you felt passionate about something . You were prepared to go the extra mile to achieve it. Are you living your dream, or have you lost it in the daily grind of worrying about how to pay all your creditors?

Both goals and plans are merely ideas in someone’s mind – until steps are taken to achieve them .


Section 1: Take charge of your finances

6

How do you feel?Perhaps you feel that you are young and want to have fun now, as retirement is a long, long way away. Besides, you might die before you reach 65 and then there’s been no enjoyment in your life…

How many pay cheques left till you retire?For example: If you have 15 years left until retirement, you have 15 x 12 = 180 pay cheques left with which to save for a comfortable retirement . If you are living from month-end to month-end and not putting anything away, how are you going to save for your retirement?

What happens to a 65-year-old who is not able to look after him/herself financially?

“Without goals, and plans to reach them,

you are like a ship that has set sail with no

destination.” Dr Fitzhugh DoDson

“A goal is an objective you want

to achieve and a plan is a specific way of

reaching that goal.” og ManDino

FA

CT Did you know?

• The average person spends 40 years of his/her life working, usually from about age 20 to age 60. That sounds like a long time, doesn’t it? Remember that each year consists of 12 months; therefore the average career consists of 40 x 12 = 480 months. Suddenly, it doesn’t seem so long anymore!

• This means we only receive about 480 pay cheques during our working lives. Therefore we have to make each and every one of them count – right from day 1 .


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