I remember sitting in the back seat of our car, as a teenager and my parents discussing the high interest rates and the impact it had on homeowners as some of their friends could no longer afford the repayments and had to sell their homes. I remember thinking – I am going to solve this problem, which led me from an aspiring politician to a budding economist and financial planner.
The theoretical approaches in politics and legal studies fell short of providing solutions to individuals and families and I was drawn to economics and financial planning as it provided the practical solutions. Financial planning provides a roadmap to achieve long-term financial goals and offers strategies to build and protect wealth. Whether it is crafting a budget, optimizing investment portfolios, or preparing for retirement, financial planning equips individuals and families with the tools to create a better financial future.
In the ever-shifting landscape of personal finance, the ebb and flow of interest rates stand as one of the most influential factors, particularly for homeowners. The upheavals brought about by the COVID-19 pandemic have only added to the unpredictability of financial markets, exacerbating geopolitical instability, and fostering an atmosphere of uncertainty.
Indeed, while none of us possess a crystal ball to peer into the future, there are timeless principles of personal finance that serve as steadfast guides regardless of economic conditions. Here are a few certainties to anchor your financial journey:
Spend less than you earn: This fundamental principle forms the bedrock of financial stability. By living within your means and avoiding excessive debt, you lay the foundation for long-term financial health.
Save for an emergency fund: Life is unpredictable, and unforeseen expenses can arise at any moment. Building an emergency fund ensures that you have a financial safety net to weather unexpected challenges without derailing your long-term goals.
Save for your retirement: Planning for retirement is not a luxury but a necessity. By consistently saving and investing for your future, you can secure a comfortable retirement and enjoy peace of mind knowing that you are financially prepared for your retirement years. Saving for retirement also offers valuable tax benefits that can enhance your retirement capital. Contributions are tax-deductible, limited to the lessor of R350 000 or 27,5% of your taxable income, and the growth in retirement funds, is not taxable. You do not pay tax on any dividends, interest, or capital gains generated by your investments within the account. This allows your investments to compound over time without the drag of annual taxes, accelerating the growth of your retirement provision.
Practice prudent spending habits: During lean times, it’s crucial to prioritize necessities and cut back on discretionary expenses. Embrace frugality and make informed choices about where your money goes. And when better times return, continue to apply the lessons learned during periods of financial constraint.
Plan for cyclical changes: Economic cycles are inevitable, characterized by periods of prosperity and downturns. During good times, resist the temptation to splurge and instead, set aside savings to cushion the impact of future economic downturns. Conversely, in leaner times, draw upon your reserves and exercise fiscal discipline to navigate through challenges.
By adhering to these timeless principles of personal finance, you can navigate the uncertainties of the economic landscape with confidence and resilience. While we may not possess a crystal ball to foresee every twist and turn, the foundation of sound financial habits serves as a beacon to guide us through times of plenty and lean times.