In tough economic times, those in already-tenuous financial positions can experience heightened anxiety which in turn can intensify financial tension between couples and other members of the family. Whilst most people tend to worry about money from time-to-time, there are 8 key indicators that create cause for concern that one’s finances are out of control:
I don’t know what I have in place
A major cause of anxiety is not knowing what policies, investments and assets one has in place, or how they are structured. It was Peter Lynch who wisely said, “Know what you own and why you own it”, and yes, this applies to Bitcoin, too. Every asset should be purchased with clear intention and purpose, and investors should understand their place in the broader portfolio.
Tip: Make a simple list of all your moveable and immoveable assets and in the adjacent column list one sound reason for owning each asset. If you know you have a Trust but do not know why you have it, it is time to reassess.
I don’t know where my money is going
Online shopping and services enable spending but make it more difficult to keep track of expenditure. In particular, online subscriptions tend to accumulate over time and, if left unchecked, can become unmanageable. Monthly costs such as gym membership, Showmax, Adobe, DSTV, fibre contracts, cell phone contracts and Uber can inconspicuously erode our cashflow and skew our budgets, causing us to wonder at month-end where our hard-earned money went.
Tip: Print out last month’s bank statement and highlight all debit orders and subscriptions that appear. If you haven’t used a service in the past three months, it may to time to re-consider its purpose in your life.
I am spending more than I earn
Once again, online shopping and an accumulation of subscriptions can contribute to over-spending and this, in turn, can result in increased debt. The only thing more dangerous than spending more that you earn, is not knowing that you are doing so. As Charles.A.Jaffe is famous for saying, “It’s not your salary that makes you rich, it’s your spending habits.”
Tip: Download a budgeting app and start keeping track of your expenses. Be ruthless about cutting out non-essential expenses such as take-away meals, on-the-fly coffees and other indulgent luxuries you can’t afford.
I have too much debt
Spending more than you earn over a prolonged period of time will result in heavy indebtedness and increased financial stress. Debt is a dangerous place to find yourself and a difficult place to escape from. Attacking debt deliberately and strategically to reverse the downward spiral of indebtedness is the first step towards financial freedom.
Tip: Download a debt reduction calculator and input all your debt. Taking your earnings into account, the calculator will generate a workable debt reduction plan. Be aware that adhering to the plan will take discipline and self-sacrifice, but the result will be worth it.
I am 100% dependent on my employment
Although permanent employment is considered low risk, the reality is that any employee is only ever one month away from unemployment. Alternative income streams or sources of passive income allow one to break the cycle of living from pay cheque to pay cheque.
Tip: Contemplate ways in which you can create an alternative income stream or build passive income. Do you have a room that you can advertise on Airbnb? Are you able to design websites in your spare time? Can you monetize a website? Can your amateur photography earn you extra money over weekends?
I have no emergency funding
Without an emergency fund, you are one eventuality away from a financial crisis. A sick pet, a seized car engine, a burst geyser or a dying fridge are all incredibly expenses catastrophes that, without access to immediate cash, can set us back financially.
Tip: Emergency funds must be accessible same-day. If you don’t have any emergency cash in place, set up a simple savings account into which deposit a small amount of money each month and continue to do so until you have built up an amount equivalent to about three-times your monthly income.
I worry about the cost of healthcare
The reality is that we all need to insure the cost of private healthcare and in-hospital treatment. Without a comprehensive hospital plan, very few people could ever afford the cost of hospitalisation, surgeons, specialists and anaesthetists. Those who do not have medical aid cover are wholly dependent on state medical facilities.
Tip: Many open medical schemes provide very affordable hospital plans that provide excellent private healthcare in a network of clinics throughout South Africa. If affordability is an issue, a network hospital plan is worth investigating.
I feel pressured to buy material trappings
Many parents, especially those of teenagers, can attest to feeling financially pressurised to purchase high cost items such as shoes, clothes and gadgets in order that their children do not feel ostracised. Keeping-up-with-the Kumalos is not a financial strategy. There will always be wealthier people than you, making it a race you can never win.
Tip: Walk the talk. We cannot allow ourselves be slaves to branded goods but expect our children not to be. Talk openly about the family’s value system, the household budget and how money cannot buy happiness.
If there’s an area of your finances that is causing concern, it is likely that a lack of control exists. According to T. Harv Eker, “Either you control your money or it controls you.” Lack of financial control gives rise to futile emotions such as fear, anxiety, panic and hopelessness which only serve to erode wealth. In the absence of firm control, money becomes master to an unwilling servant. By taking control of one’s finances, we are able to harness the magic of compound interest, grow our personal wealth and employ what we have in the service of bettering the world around us.
Have a wonderful evening.