3 Critical personal finance questions


Many South Africans answer ‘no’ to three critical personal finance questions. These questions are not new or difficult and are key to successfully managing your personal finances. What is more is they are applicable to all stages of your financial life.

1. Do I spend less than I earn?
Spending less than you earn is the foundation of building wealth. This habit applies irrespective of how much you earn! Research shows that those who become wealthy are frugal. They watch their expenses like a hawk, spend money cautiously, and save money every month.  One way to get into this habit is by budgeting, since this enables you to have a good grasp of your monthly income and expenses.

2. Do I invest my savings wisely?
If you succeed, as you should, if you are preparing a regular budget (ideally at least monthly) to spend less than you earn, the second priority is to invest the savings wisely.  The keys to successful investing are:
a) keep costs low,
b) start early,
c) invest as much as possible, as often as possible,
d) invest for as long as possible and
e) invest in a diversified portfolio.

3. Do I use debt wisely?
Having excessive debt, in particular credit card and retail store debt, is like swimming with a heavy weight tied around your legs. Using short-term debt excessively causes quite a few problems.

a) It causes us to spend more than we otherwise would.  For example, borrowing for a car causes many to focus only on whether they can afford the monthly instalment, rather than whether the cost is appropriate, given their earnings. 

b) Credit cards with their low monthly minimum payments tempt some to use them without much thinking. In fact, according to Psychology Today  “Experimental research also suggests that credit cards can stimulate overspending: People are often willing to pay more for the same product when using credit than when using cash.�?

c) Excessive debt is associated with financial worries. Along with the financial worries, struggling with debt often leads to depression, anxiety and stress and can cause tension or arguments between you and your loved ones.

You might want to read about how to go about financing your car.