If you, you’re already managing your money well. To take your finances to the next level, however, you also need to set financial goals. This allows you to think beyond each month, and assess the bigger picture of your financial future.
Money goals can be short-term, such as saving up for a holiday, or it can be long-term, such as paying off your mortgage. You can pursue a mixture of both short- and long-term goals, and you can set as many or as few as you’d like.
When you plan your goals, make sure they are specific, measurable, and have a time frame. For example, you could set yourself the following goal: Save R2,000 by 1 September to go scuba diving. If it’s clear what you’re pursuing, it will be easier to achieve.
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Setting financial targets is a personal matter. You need to select goals that suit your unique financial situation, as well as goals that motivate and drive you. If you’re just getting started, go down the following list to help get the ball rolling.
1. Reduce (or eliminate) your debt
According to the Reserve Bank (SARB), South Africans are spending around 75% of their disposable income on servicing their debt. If this sounds like you – or where you may be headed – then setting a financial goal to reduce, or completely settle, your debt will have a large impact on your finances.
Once your debt is under control, you will have money available to allocate towards more exciting goals, such as saving for your dream car or visiting the south of France.
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2. Prepare your emergency savings
Before you consider saving for a big-ticket item or investing in the next up-and-coming cryptocurrency, you need to make sure you’re financially prepared to handle an emergency.
For example, imagine you trip while carrying a jug of water and the glass shatters and cuts deeply into your hand. You may just require some bandages and a new jug, but what if you damaged one of your tendons and you need to go in for emergency surgery?
Your medical aid may cover this cost, but you could still be liable for a co-payment, as well as any other costs you may incur, such as uber fees because you’re unable to drive until your hand is healed.
This is where your emergency fund steps in. Try to save three months’ worth of living expenses in an easy-to-access account, such as a general savings account or even a unit trust or money market account. This will protect you from being flung under the bus by unplanned expenses.
3. Protect yourself and your assets
Your vehicle may be one of your largest assets, but did you know that between 65% and 70% of registered drivers in South Africa are uninsured? If you’re one of them, you could land yourself in a mountain of debt when you have a minor fender bender with a Lamborghini or Porsche.
Finding the right insurance can also be a drawn-out process because there are so many products and providers in the market.
Perhaps you want to team up with a financial adviser, or maybe you plan to do the research yourself. In either case, by setting insurance as a goal, you will guarantee you are protected from financial ruin when you or one of your assets becomes a liability.
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4. Save for a big-ticket item
Although this isn’t an essential financial goal, it’s certainly an encouraging one. Big-ticket items are often wants rather than needs, which is exactly why they motivate us.
If you have less exciting financial goals, such as settling your debt or preparing your emergency fund, it’s important to spice things up with a big-ticket item, such as saving for a paragliding experience or a road trip to Knysna. This will inspire you to persist with your more mundane goals, and give you something to look forward to.
5. Prepare for retirement – or FIRE
Traditional retirement is still very popular and, if you start saving early on, it will ensure that you spend your senior years care-free and sprawled out in the sun.
However, nowadays, people are also considering alternatives to this because they want Financial Independence and to Retire Early (FIRE). This involves having a very tight budget and saving up to 70% of your income so that you can retire earlier and enjoy your “golden years” closer to your youth.
Whichever option you prefer, this long-term goal is essential to your future and the sooner you start preparing for it the better.
6. Improve your credit score
You may require a good credit score to be successful with some of your other financial goals. For example, when you apply for a home loan or car insurance, your lenders will request your credit report before approving your application.
By setting your credit score as one of your financial goals, you will be able to facilitate the triumph of some of your other goals.
ClearScore gives you access to your full credit report so that you can figure out how to start improving your credit score.or to get started.