IMPROVE YOUR MONEY MINDSET
If there’s one thing this lockdown has taught us, it’s to reevaluate what is essential in our lives. As we try to navigate working from home, raising children, and preparing for the unknown – it becomes more and more important to be financially sound. While you have some time on your hands, why not assess, evaluate and adjust your savings and budgets? Here are some tips:
Develop your new budgeting rules
There’s a general “rule” that you should spend 50% of your after-tax income on fixed essential costs like your rent or home loan, vehicle repayments or transport costs, insurance, medical aid and Gap Cover, education, electricity, water, rates or levies, essential clothing, and groceries; 30% on your wants and entertainment; and 20% of your income for paying off debt or saving. The 80/20 rule says save 20% of your income and spend the rest (great if you’re not in debt!)
The truth is, there is no “perfect rule”. For instance, some local experts say you should look at spending 30% of your income on housing (including levies, bond, rates and taxes) and transport, 10% of your income on long-term savings, 15% of your income to a retirement fund, and around 10% on yourself.
Of course, your spending habits will likely have changed drastically during COVID-19. So, the main outtake is; take time to develop your own, new spending rules, taking into account your earnings, debt and current circumstances. Try balance out your salary into necessities, savings and entertainment – more heavily weighted on essentials and savings.
Track your income and spending
It sounds so simple, but many people don’t really pay close attention to how much they earn or spend. The Japanese use the Kakeibo method that involves two notebooks; one to record your income and expenses once a month, and the other notebook (preferably one that fits into your bag) where you write every expenditure you make during the month. “There is something profound and reflective in writing down your expenses by hand,” says Mapalo Makhu, founder of Woman & Finance. If you prefer to be a little more tech savvy, you can use budgeting apps such as: Mint or Good Budget. Compare your spending to life before COVID-19 (if you can) and see where you might’ve been overspending for no reason.
Now that you’ve got a clearer view of your monthly expenses, see if there are any you can cut back on.
Decide what’s an absolute non-negotiable necessity to help in times of pressure in the future (after all, this virus could stick around for a while). Go through your phone and look for auto-renewing app subscriptions, do you still need them (make sure you look out for fees or cancellation charges first)? Assess your entertainment and reward memberships: things like gyms, movies, clubs, and games etc. Do you still need those?
Alongside that comes things you now know are non-negotiable. Make room in your budget for non-negotiables that will help you cover emergencies in the future and save you from having to fork out a lump sum if something goes wrong.
Why Gap Cover is undoubtedly worth considering
Gap Cover and medical aid are key essential insurances to ease up your medical bills when they hit. Keep it in your budget now more than ever to ensure you have enough protection. Medical procedures are expensive and could lead to life-changing debt if you don’t have cover.
Talk to your broker to find out how you can adjust your cover if needed, and how to get the most out of your benefits. Adjusting your cover is better than having no cover.
Keep a medical aid plan that covers the essentials and then see if your Gap Cover option is still the best suited to help manage any potential medical expense shortfalls that may arise.