Your 6-step plan to financial success in 2020

Fresh year, fresh start. With the right information and tools, you can take the steps you need to control debt and manage your money. Budgeting and planning is the critical first step towards creating and maintaining your long-term financial health.

Here are the six steps you can take to regain control of your finances:

Step 1: Choose your weapon

Choose the tool that’s going to work best for you in drawing up your budget and setting your financial goals. Some people are old-school, and manually write things down in an exercise book. Others use basic Excel spreadsheets. Another option is the 22seven budgeting tool which you can find here. Or use your bank’s financial tools: Capitec has a great budgeting tool that helps you set a budget and set your financial priorities. FNB’s app has a money tool to help you to track your spend and manage your cash flow.

Step 2: Draw up a budget

Now make two lists: income and expenses. List every bill, loan and credit account payment, as well as variable expenses that change from month to month, such as groceries, clothing, transport and entertainment costs. Subtract the one from the other. If you have a negative number, go back to the drawing board and see where you can cut – or if you’re able to, earn more.

Step 3: See where you can spend less

The simplest way of building wealth: spend less than you earn. So take a long, hard look at your spending, and look for ways to save. See if you can cut in areas like pay TV subscriptions and mobile contracts. And shop around for the best insurance deals – you can often save money here. One area that puts huge pressure on many people’s finances is the so-called ‘black tax’. It’s important to look at what you can afford, be realistic and manage your family’s expectations to protect your financial health.

Step 4: Create an emergency fund

If you do anything this year, build an emergency fund into your budget for those unplanned expenses. Because life happens. How much money should you set aside? We suggest starting small. Here’s an idea: take the money you’re saving from January’s interest rate cut - if you have a home loan of R1 million, you’ll be paying R165 less per month – and put it in a separate account. TymeBank’s EveryDay account lets you create up to 10 different GoalSaves, for example.

But … I don’t have any spare money to save!

You’d be surprised. Some people put their change in a jar in the kitchen. You can do this electronically now: with the FNB app, you can round up the amount every time you spend and put it in a linked savings account. There’s also an app called Stash that lets you transfer as little as R10 into your Stash account, which invests the money in a tax-free savings account.

Step 5: Reduce debt

Don’t ignore any debt accumulated over the holidays. Open your credit card and store card bills immediately, and make a plan to tackle them head on. In fact, reducing your debt should be your number one priority. Start with your highest interest debts first: look at how much you’re being charged in interest each month, and think about how you could use that money when you’ve paid it off. And remember to pay your credit cards in full each month to avoid any additional debt.

Step 6: Review, Review, Review

The only way to stay on top of your budget is to check it regularly. Review your plan weekly or monthly to keep track of how you are doing. Try setting a regular budgeting session in your calendar: that way, you’ll treat it like an appointment – and you’ll soon realise that it’s not as bad you think it is. The most important thing, though, is to start now.

And remember, you can get your credit report for free, once every 12 months, from information providers like TransUnion. Get it now and plan your finances better this year. Have a great – and prosperous – 2020!