Driving through the pothole-ridden roads of our cities can be a daunting experience, but it seems that navigating the financial potholes in our personal lives can be equally treacherous.
According to John Manyike, head of financial education at Old Mutual, South Africans often find themselves falling victim to financial pitfalls, especially when relying heavily on credit to bridge the gap between paydays.
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“Like traffic potholes, financial potholes appear when we buy stuff out of impulse and aren’t paying attention. We suddenly find ourselves in trouble, and it’s too late to avoid the resulting money crunch. Rather than face them, we try to move around the edges, knowing that tomorrow, the hole in our path will get deeper and our troubles even greater,” explains Manyike.
Manyike emphasises the need for self-awareness in avoiding financial potholes.
“Successful personal money management begins in the mind. If you know that you often bite off more than you can chew financially, then set up a budget that you can follow. Get rid of the cards and friends that make spending money easy, and if you need help, find it with a qualified personal financial planner. Most importantly, know your triggers and avoid them.”
Paying attention to one’s financial situation is another vital aspect often neglected by many. Manyike highlights, “A significant number of people don’t have a monthly budget and don’t know where their money goes. If you aren’t paying attention to your present, chances are that important things like saving for emergencies, retirement, and having life insurance to ensure financial security and risk protection for your family are also being ignored.”
Understanding one’s worth is key to building a solid financial future.
Manyike advises entrepreneurs to calculate their net worth by evaluating their assets and liabilities. He says, “To calculate your net worth, you should add the value of your house, savings, retirement funds, and personal property and deduct what you owe.
“Then, you can begin planning a future in which what you own is more than your debts. Knowing your worth goes beyond numbers. Appreciate yourself and personal values to the extent that you don’t need to spend money or live a particular lifestyle to validate who you are in society.”
Increasing knowledge about personal finance is also crucial. Manyike suggests, “The more you know about managing credit wisely and investing in your future, the better you will be with your money. Taking insurance to cover your debts can be a valuable way of ensuring that your family or partner does not inherit your debts if you are retrenched or die suddenly.”
He concludes by emphasising the importance of being aware of self-created financial potholes and avoiding them altogether.
“The stress of being unable to answer your phone, avoiding creditors, and dreading knocks at the door pile on anxiety and only complicates things. The result could be car and property repossessions and even impaired credit record that could ruin the chances of a better job, some employers do a credit check before hiring. Being aware that potholes are usually self-created and can be avoided altogether is worth the effort.”
By incorporating Manyike’s expert advice, entrepreneurs can navigate their financial journeys with greater success. Proactive financial management, resisting impulsive spending, and seeking professional guidance when needed are essential steps in avoiding financial potholes and paving the way for a secure and prosperous future.