Can you remember your first paycheck? It probably felt like you had a lot of money in your pocket until you started spending it and assigning little tasks to it, known as a budget. These include rent, money for transport, clothes, insurance and food, among others. It doesn’t take long before you start wondering where all that money went.
Then comes the must-haves that drain every budget, the latest mobile phone that you just need to have, on a small monthly contract fee that’s totally doable. Or trendy work clothes for the new job that you just have to have, on small fixed amounts at your favourite fashion stores. Soon, all your disposable income disappears in front of your eyes.
That’s not even to talk about the financial services army, who never runs out of ideas on how to use your earnings – from funeral policies to unit trusts and other sophisticated investment products. Soon, you’re wondering how you will make your budget. So what’s the solution? In a nutshell, it’s living within your means. But there is a lot more to financial planning than that. Let’s take a look at how you can protect your budget, maximise your spending power, and live the life of financial freedom you always wanted.
Your First Step to Sound Financial Planning Is to Protect Your Disposable Income
Don’t rush into making any of these arrangements. This is especially true for ones that’ll have you singing away a large chunk of your disposable salary, for what may seem like an eternity. Even if it doesn’t, and if the marketing material only promises that it’ll be a short 24 months of monthly repayments, consider whether you really need it, and if you can really, really afford it.
It always pays to investigate what you actually require, then do some homework on each piece of the financial puzzle prior to committing yourself to spending that money each month. In this way, you avoid making very expensive mistakes, and won’t overcommit yourself.
Draw Up Your Personal Budget
The backbone of any sound financial planning and the foundation of your future financial wellbeing is a budget. When more money is going out than what’s coming in, you’ll never be financially independent, regardless of the amount of bonuses, promotions or raises you get.
A budget remains the single most important weapon you have for keeping your expenses in check. This is especially true since most people underestimate the true amount of their expenses. Now let’s take a look at some of the basic financial planning needs every person needs for a sound financial future.
Life Cover, and Its Importance
There are two main reasons why you need to have adequate life insurance. The first one is so that you know all your liabilities and debts will be covered in the event of your passing. The second reason is that you know your dependents will be covered by your future income stream.
Life cover normally increases to a point where all your dependents are covered, along with any other debts you may have. It tends to decrease as your debts reduce, and your children start becoming financially independent.
Disability Cover, and Its Importance
While disability is frequently sold as a single lump sum, income protection remains one of the most ignored areas of financial planning. Regardless of your dependent/debt situation, when earning a salary, you have to make sure that should you be unable to continue working, the income will be covered.
Savings require you to take various aspects into account. Your short-term needs such as car tyres or holidays can be addressed with short-term savings, while aspects such as a house deposit or your child’s tuition fees fall into the medium-term savings category. Long-term savings refer to retirement, etc.
In terms of your retirement needs, don’t discount the power of compound interest. If you harness its power correctly, it can help you to retire comfortably, if you start saving early in your life. In order to save enough, you need to start early enough. You want to be able to retain the same quality of life during your retirement, that you’ve become accustomed to now.
Draw Up A Will And Testament
If you have assets, you need a will and testament. A will forms an important of any financial plan. This is especially true if you have dependents that need to be taken care of in the event of your untimely passing.
Saving isn’t necessarily the most appealing of financial planning principles. It’s not a topic that sells movies, and it doesn’t place books on bestsellers lists. But it’s still one of the most important things you can do to secure your future financial wellbeing. If you have debts, consider paying off a little bit more than necessary, and in that way you are already saving by getting out of debt sooner, and saving on interest.
Also, keep an eye out on ways to save on your monthly bills. Protect your disposable income incredibly jealously, and don’t surrender it for just anything. Once you commit your disposable income, it’s not that easy to free it up again, and you’ll have to work hard to get it back. So don’t give it away too easily.
Keep in mind that the most important thing about becoming financially independent is to have a sound financial plan. The cornerstones of this financial plan are to have sufficient life cover, achievable budget and the correct income protection to ensure you do just fine should any of life’s happenstances come down on you.
Louis enjoys writing about financial planning and well-being, and always keeps an eye out for new financial growth hacks he can share. When not writing for Archetype Copywriting, or writing about personal loans for Udu loans in South Africa, Louis can be found scrolling through finance blogs trawling trending articles.