Easy as 1,2,3: budget and start building your wealth

A new year is like a clean slate - you get to draw up fresh plans, strategise and set the tone for the next 12 months. If your goal is to work towards financial freedom, here are tips to help you put together a plan that, with determination and discipline, will help you get there faster.

Learn to budget and stick to it

A budget helps you get a full picture of your monthly obligations and how much disposable income is left after you've taken care of your fixed and variable costs.

Once you've drawn up your budget, stick to it. Review it regularly so that you can stay on track. Remember that the aim is to spend less than you earn and, where possible, to save or invest the difference.

You can also use apps like 22seven to help you keep an eye on your debit and credit card spending.

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Get rid of your debt

If one of your goals is to eradicate your debt, you should draw up a monthly debt repayment plan. Choose a strategy that will help you remain committed to your goal.

If you're concerned that you'll be tempted to spend on your credit card, pay off a portion of the card, then ask the bank to decrease your credit limit. This way you won't be able to spend the money you have paid into your credit card. You'll avoid the trap of revolving credit and pay it off quicker.

If it will take you longer than a year to pay off all your debt, do not be discouraged. It's better to start somewhere rather than putting it off because you're overwhelmed.

Start working on your emergency savings fund

Once you've paid off your debt, you should turn your attention to saving. If you make it a habit to take the disposable income you now have and save a percentage of it, you'll be able to build up your emergency savings fund for a rainy day.

Set a realistic savings target with a time frame. If you think you won't be able to stay disciplined, share your goal with a friend or relative and ask them to help you stay accountable.

Get into investing

While saving is important, investing is the best way to start building wealth. Admittedly, it's not something many people are comfortable doing. Exchange traded funds and unit trusts could be a starting point if you're nervous about stock picking.

A little research and consulting with a financial adviser or financial planner could help you get started.

Get covered, stay covered

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A very important aspect of prudent financial planning is insurance such as home and vehicle cover. Life and disability cover is also important , especially if you are a parent or have family members who rely on you.

You might have a "this won't happen to me" attitude , but it's best to err on the side of caution. You don't know what could happen tomorrow so it's better to be safe than sorry.

Plan for your 60-year-old self

Saving for retirement is something a lot of people resent, simply because they find it difficult to think about their future selves. Many start saving for retirement very late. Do not make this mistake, because then you lose out on the power of compounding.

Don't leave out the estate planning

You may think that you've taken care of everything because you have the basics: life and disability cover, household cover and medical aid. But do you have a will? What will happen to your assets and retirement funds when you die?

Your bank can help you draw up a will as well as take care of other estate-planning matters.

tsamelad@sundaytimes.co.za