Is your spending out of control, and your bank balance in need of a boost? Catriona Ross shows you how to save your money ship from a Titanic disaster by just taking a few simple steps…
The start of my money makeover
Perhaps you too have had that sinking feeling about your finances: it’s a bit like knowing a cluttered cupboard has needed a clear-out for years, but you have no idea where to even start. Last year, I spotted a title in my book club, The Wealth Chef: Recipes To Make Your Money Work Hard So You Don’t Have To by local author and financial expert Ann Wilson, and thought, ‘Well, if not now, then when?’.
About the book
Ann used to be a successful civil engineer, but her taste of the high life meant she started living off her various credit cards. Before she knew it, she was divorced and in serious debt. But, she managed to overhaul her finances and she became ‘financially free’ — she now lives off investment returns. Whereas I, a single mother, had zero assets, only debt, and had been struggling to stay financially afloat, never mind free! So I felt that if she could do it, so could I.
The book’s introduction reads: ‘Conscious spending is the key. All you need to do is be conscious about the choices you make every minute of your day, because it’s the decisions we make every moment which shape our destiny.’
Inspired by this, I decided to dedicate a full month to Serious Financial Introspection, tracking all of my money matters in a notebook, as she advised. First I wrote my ‘financial freedom vision’: how would my life look if money was not an issue? Well, I would write novels for a couple of hours a day, spend a morning a week painting, live in a charming home within walking distance of my daughter’s school, and holiday in the bush annually. Obviously. Then the real work started.
Do the maths
It was time to look at my balance sheet. What was I worth? Did my liabilities (things that take money out of your pocket) outweigh my assets (things that put money in your pocket)? Since I’d sold my flat when I got married, and was now a divorcee renting, the result was shockingly negative.
Next, I started a ‘money diary’, in which I listed everything that I spent for a month, then calculated how much I spent on each segment (necessities, savings, investment, save to spend, charity). I then compared these numbers with Ann’s recommendations: 55% of net (after-deductables like tax and pension) income for necessities, 10% each for savings, investments, fun, and educating myself about money, and lastly, 5% for charity contributions.
What happens next?
For a month I wrote down everything that I bought or spent money on. Every. Single. Thing. I dutifully entered data into columns: Vendor, Amount, Date, and Category (like food, entertainment, and petrol). At the end of the month I poured myself a large glass of wine and added up what I’d spent in each category, and decided where I could save money. Then I embarked on a thorough overhaul of my expenses — like changing my website hosting from R250 a month to R39.
Read more: How to save money on your weekly shop
Facing the facts
A sickening discovery was that debt was costing me R1 800 per month: R1 500 for my credit-card payments, plus R300 in debt fees I hadn’t even noticed before. Combined, all of my unchecked debt was setting me back R21 600 a year!
The first thing I did was a balance transfer, where I could get a lower interest rate on my credit-card payments, at a different bank. My accounts were in good standing, so I was able to get a lower rate — 13.5% to 9.9% — which was to be paid over 9 months. I wasn’t able to pay off all my debt in that time, and after 9 months, the rate was upped to a massive 23%, so I moved back to my original bank.
Even though I wasn’t able to pay off all my debt, I made a big dent with the lower rate. I also opened an ordinary, linked savings account, which helped separate my set-aside money from my monthly income and expenses.
Next, I calculated a brand-new figure that I, as a freelancer, needed to earn monthly to make some financial headway. The trick, Ann explains, is to resolutely keep increasing income and decreasing expenses, so the gap between your reality and target each month, and year, narrows.
Creating good habits
Talking oneself out of impulse buying can be tricky. Become an expert buyer, Ann advises, by never paying more than you need to for what you want, and getting huge value from every bit of money you allow to flow out. Though I’ve always been good at scouring second-hand shops for finds, it can become an impulse-buy area for me: so I learnt to be more disciplined and drive past. To cut down on my spending, I bought, and spent, smart: I got clothes from factory shops, I used shopping rewards, and I ate out less.
But I realised that banning all treats doesn’t work, as a stringent spending diet only results in binging and guilt, so with the 10% I set aside for fun, I used that money for tango socials, the odd restaurant meal, buying second-hand books, and even going on self-catering getaways. The most amazing part? I’ve started feeling a burst of affluence when I don’t buy something instead of when I do.
A new mindset
Ann believes you shouldn’t wait until you have money before you invest. Instead, create new ‘wealthy habits’ while you pay off your debt. I looked into various stock-market options, and discovered a couple that would suit me, like a unit-trust investment for my daughter that just needed a few hundred rand a month.
I studied the paperwork on an investment fund I’d forgotten I had, and I also restarted the retirement annuity I stopped paying into 9 years ago, as I couldn’t afford it once I became a freelancer. I now put R500 a month towards it — it’s small, but it’s certainly better than nothing.
Read more: How to sort out your debt in your lunch hour
My month of money overhaul changed the way I handle my finances. I’m now far better versed in financial matters: in fact, when I phoned to restart my retirement annuity, the consultant congratulated me on how knowledgeable I was!
By using Ann’s ‘conscious spending’ techniques, within 12 months of my 30 days of financial introspection, I had reduced my credit-card debt from over R20 000 to R10 000 (it’s now at R6 500). I’m also in the process of switching my credit card to a better deal again as I continue to pay it all off, and in a few months my car will be fully paid for. Thanks to Ann, I’ve managed to avert hitting a financial iceberg, and I no longer have that sinking feeling when I look at my bank balance…
Ann’s book, The Wealth Chef (Hay House) is at Exclusive Books; or go to her website, thewealthchef.com.