Financial planning is a lot like taking a road trip.
For starters, you need a destination. Jumping into your car and driving around aimlessly sounds like an adventure ripped from a movie script, but in reality you're more likely to run out of petrol in a place without cellphone reception.
Then you'll need a roadmap or GPS. And cash handy for necessities like petrol and tollgates, and emergencies like punctured tyres and torn fan belts. Not to mention money to cover your expenses when you eventually arrive at your destination.
Put like that, it all sounds a little overwhelming, and you haven't even turned the key in the ignition yet. But once you've reached your little slice of paradise where the wonderful memories will last you a lifetime, all that planning will seem worth it.
The same goes for financial planning. To get the most out of your earnings and achieve your future goals, you need to plan both for the destination and the unexpected hiccups that are an inevitable part of life. That means, you will need to incorporate both long-term and short-term goals into your overall financial plan.
Long-term financial goals
Retirement, your dream house, a top high-school for your children — these are plans that will require serious investment to realise. Unless you are fortunate enough to have lots of cash at your disposal, it will take a few years for you to build up the appropriate financial reserves. Long-term financial goals require time, patience and discipline. The rewards for all that hard work, however, are often priceless.
Short-term financial goals
Life happens. Cars and household appliances will always need repairs or replacing. Your kids need new school uniforms. And a tablet. Your health could suddenly take a turn for the worse — who could have foreseen Covid? It is said that the only constant in life is change, and that change seems to come right out of your pocket.
This is why you need short-term financial goals. These will help to cushion the impact of more immediate expenses while you save up for your future plans. A good example is an emergency fund, to which you would dedicate a small portion of your salary to every month. You could also set up a savings account dedicated to taking care of school items, or servicing your car. As the global pandemic has shown us, it helps to be prepared, to expect the unexpected. In this way, you won’t hurt your long-term goals for short-term fixes.
GPS (Get your Plan Started)
So you've decided on your long- and short-term goals, but with your money going in all these different directions, things could get confusing. Remember that road map or GPS we spoke about earlier? In financial planning terms, this is a budget.
A budget is a valuable tool that allows you to keep your finances in order and stay on track with your goals. If you are unsure about how to do this, here is an easy guide to budgeting.
Choosing the right account for you
Choosing the right account for the money you want to save is important. For long-term goals, you need an investment account, a place where the money isn't easily accessible so you won't be tempted to withdraw it before it has reached its full potential. Insist on the best interest rates for your hard-earned money, then sit back and let compound interest work its magic. (Want to know what compound interest is? Click here)
African Bank offers a Fixed Deposit account with the best interest rate in South Africa. Investing your money here over a 5-year period will allow you to earn 12.22% in interest. Click here to find out how much you investment could be worth.
For short-term goals, an African Bank MyWORLD account is the perfect tool to help with diversifying your savings. You can link up to five Pockets to your Primary Account, with no monthly account fees. You can even name each Pocket after the goal you are saving for, and automate monthly payments into them. This gives you the flexibility of being able to access your cash when you need it most, while earning the best savings interest rates in SA. What's more, you can keep real-time tabs on your savings progress through online banking.
What are you waiting for?
You will only reach your target if you get going. Budgets are tight right now, due to the economic downturn, so start off small (You can invest tax-free from as little as R50. Click here). But please do start. The longer we put off saving and investing our money, the less time we have to achieve our goals.
All set? It could be an eventful journey. There are bound to be a few potholes, and you will surely learn a bit more about yourself along the way. But, with the right planning, you can take everything in your stride. A better future awaits you.