One of the most important steps to financial freedom is an honest and clear personal budget. Picture: iStock
Follow six ordinary South Africans as they take up the Absa/City Press Money Makeover Challenge and undergo a money makeover boot camp over the next six months. Each candidate has been allocated their own Absa financial adviser. The candidates will be required to complete certain financial tasks and to stick to the budgets set out for them. Personal finance expert Maya Fisher-French shares their stories
Former US vice-president Joe Biden once said:
Don’t tell me what you value, show me your budget and I’ll tell you what you value.
Joe Biden, former US vice president
As our contestants clearly value financial freedom, their first challenge was to get a handle on where their money goes each month and to make some decisions about what they were prepared to live without to reach their personal goals.
“I had never looked at my bank statement and it was a very uncomfortable thing to do,” says 26-year-old financial controller Samke, whose budget review revealed how impulsive she is when it comes to spending money. “I spend anyhow and buy anyhow, without proper planning and budgeting.”
For freelancer Tamsin, as her income is variable, she had not realised she was living beyond her means. “Even once I had reduced my monthly expenses and lived frugally, I had to come up with a lot of money every month to survive. For the first time, I actually looked at the cost of certain food items and compared prices and bought the cheaper options. I stopped buying luxuries like my special face cream.”
For municipality field worker Bafo, his budget revealed he was buying unnecessary items when he went to do his household shopping, and forgot to add items to his budget such as his increased petrol bill for business trips. “I have decided to cut back on some unplanned personal trips as it will save money and fuel,” says Bafo, who adds that he was surprised how much his daily lunch was costing. “I have realised that I can actually save a lot if I spend according to the budget and take a lunch box to work on certain days.”
Accountant and widow Amanda says: “I realised that one cannot be like an ostrich with your head in the sand and just accept that, for example, banking fees are what they are. Same with life insurance – it pays to shop around a bit.” She has also made the decision to downsize her car.
For environmental affairs officer and single mum Nkosi, the amount of money she spent on petrol to visit friends and go to shopping malls was a surprise. “I’ve stopped buying excess food that ends up in the dustbin. Also, I am comparing prices of grocery items and I go for the cheaper ones, but still make sure they are good quality.”
Thuli, a mother of four and head of operations at an NGO, realised she needed to start budgeting for medical bills. “When my medical aid savings account is used up, I am forced to pay out of my pocket,” says Thuli, who is also paying for her 84-year-old father’s medical bills.
READ: Who are the 2018 Money Makeover candidates? Learn more about them here
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Four budget killers
1. Bank fees and cellphone costs
For most of our contestants, bank fees and what they were spending on calls from their cellphones were a surprise. After Amanda’s adviser Riette reviewed her banking profile, she changed to a cheaper banking option and closed her revolving loan facility, which carries a monthly fee.
Nkosi decided not to renew her cellphone contract and to opt for a prepaid deal. “With a contract, you just pay for your device rather than airtime,” says Nkosi.
Tamsin has stopped buying top-up airtime and started using WhatsApp to make all her calls.
Data costs in South Africa are high but one cannot be without a phone in this day and age. Make sure you find the best phone and package that suits your pocket and lifestyle. Picture: iStock
Action: Review your bank fees every year and take special note of cash withdrawal fees. Also review your debit orders – are there things you didn’t sign up for or services you never use?
Be brutally honest about your cellphone usage and don’t buy a new phone if the existing one is working fine.
2. Unplanned family expenses and ad hoc money requests
Nkosi was surprised by how much money she sends to family members that she had not budgeted for. Her adviser Funi will work with her to figure out how much she can spend on supporting her family, ensuring this forms part
of her budget.
If it’s not budgeted for, the answer is no.
Samke has already experienced the benefit and discomfort of sticking to a budget.
After starting this competition, I had a friend who asked me for money – it was difficult and liberating to say no. Previously, it wouldn’t have been easy for me to say no when a person asked me for help, but it was liberating because I got to see that my mind is set on sticking to my budget
Samke, Money Makeover candidate
As Thuli has identified that her father’s medical expenses put pressure on her budget, one of her first goals will be to set up a contingency fund for her family and her father’s medical bills.
Action: Make sure your family obligations are set down in your budget and be honest with your family about what you can afford. Create an emergency fund for those unexpected family expenses such as medical bills. Don’t lend money that you cannot afford to lose.
3. Not reviewing your insurance
Nkosi’s adviser Funi found that Nkosi was overspending on insurance. “We found that some policies were not necessary and she was throwing money away because a proper financial needs analysis was not done,” says Funi, who found that Nkosi had multiple bond insurance policies on her five investment properties. By changing to a single premium cover for all bonds, she reduced costs and ensured that the cover remained in place for her family once the mortgages were paid up.
Nkosi also had three funeral covers and was able to reduce the cost by paying for one policy that will cover her and extended family members.
Tamsin cancelled her Vitality membership because she didn’t use it properly, while Amanda’s adviser Riette reviewed Amanda’s cover and found policies for life, disability and trauma.
Action: Have a regular and proper review done of your insurance policies. If you have multiple policies, you could save money by consolidating.
4. Credit and store cards
The only way to stick to a budget is to only spend the money you have – this means giving up on those credit facilities. Thuli found that she was relying on her credit cards to get her through the month. “I pay monthly instalments on time every month, but end up using the cards again,” says Thuli, whose plan is to pay off the cards and close them.
I am going to leave the cards at home to avoid using them.
Thuli, Money Makeover candidates
Nkosi has already closed some of her clothing accounts to remove the temptation and has decided that, from now on, if she needs something, she will only use cash to pay for it.
Action: You will never get out of debt if you keep using credit, so cut up the store cards and leave your credit card at home.