4 minute read
WEALTH
TOO MANY SHOES MAY CAUSE LONG-TERM FINANCIAL DISTRESS!
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LIANNE LUTZ
We all know the rush of excitement amidst a shoe shopping retail therapy experience. All that is needed now is a cappuccino and a chat with your bestie! However, when the credit card statement becomes a frequent feature of your nightmares, it’s time to take control and to understand that too many shoes may have a negative effect on your financial affairs. What is needed is a sensible, practical approach to money management. Being in control will open up the path to a secure financial future. It’s essential to educate yourself to understand the concepts, terminology, and approaches to guide you along your financial well-being path.
What is money management?
Money management encompasses budgeting, saving, investing, and spending. Money management requires knowledge, introspection, and restraint. Always ask yourself – is this the best decision at this time in my life?
What is a credit score rating?
A credit score is what most lenders use to help them decide how likely it is that they will be repaid on time if they give a person a loan or credit card. A credit score is based on your credit history. It ranges from 300-850 – the higher your score, the more likely you will be able to receive a loan or a credit card. How you’ve managed your finances in the past will contribute to your success when
applying for finance or funding.
A positive long credit history is established by making regular payments and having a mix of long-term debt (mortgage bond), cell phone contracts, credit cards, and store cards.
A bad credit score usually results from having too much debt where the amounts owing are not paid regularly when due. Judgements or administration orders issued by courts will indicate that you could not meet all your debt obligations. Too many account applications and enquiry activity in a short period of time may show desperation or bad money management skills. Pace your credit applications as well as pay in full whenever you are able to do so.
Check your credit score regularly to know how financial institutions will view your financial and credit history.
What is debt consolidation?
Debt consolidation is taking out one new loan to pay off all other existing loans. In so doing, you will only have one loan amount to pay each month. The consolidation loan usually has a longer-term payment period. For example, a five-year loan will be paid off in sixty months, resulting in more interest paid than a store account to be paid off in six months.
Debt consolidation is not a step to be taken lightly. It is better to manage your finances well to avoid the need for debt consolidation. However, if you are struggling to pay all your monthly instalments, the option of debt consolidation may be a solution.
Here are four steps to help you on the journey to effective money management:
Step 1
Create a budget listing all your sources of income and all your expenses. Become aware of your spending habits. Many small purchases can become a significant amount, and you can easily blow your budget. Keep track of your spending on an Excel spread sheet. Within a few months, you will see your spending on necessities and the types of purchases that lead to overspending.
Step 2
Create a list of all your debt. It must include credit cards, bank overdrafts, personal loans, vehicle finance instalments, and your mortgage bond.
Step 3
Divide the debt into short, medium, and long term. Take note of the different rates of interest that apply to each individual debt.
Step 4
Set saving and investment goals. It takes discipline, a degree of risk, and educating yourself on the many available options. Remember to diversify. Don’t put all your eggs in one basket. It is crucial to save for a rainy day and have enough set aside to cover at least three months of expenses that may be needed in the event of illness, accidents, or other unexpected expenses. Use your savings account to build healthy financial habits.
No matter where you are on your journey, it’s never too late to get in the driver’s seat and take control over your finances – the sooner the better. Here are some key tips to keep in mind when those shoe sales come calling;
• Never spend more than you earn. • Avoid debt whenever possible. • If you require debt consolidation, use it as a stepping stone to a better financial future. • Bring a financial advisor on board to assist with planning for investment, retirement, and taxation. • Having a squeaky clean credit rating will simplify the process when applying for credit or a loan. • Before applying for a loan, check what your credit score is.
