4 Steps to financial peace of mind  

Nappies, kids’ parties, school books, trips to the GP. When you have children your financial situation changes - radically. To make sure you come out on top, planning is critical. René Roux, highlights 4 imperatives to help parents achieve financial peace-of-mind. 

1. Tackle your debt first

Pay off your debt first. Don’t underestimate how much debt costs you in the long run. Credit cards, store cards and personal loans have the highest interest rates, so pay these first. But do not stop paying your other credit providers – you do not want to jeopardise your house or risk losing your car.

Suggestion: It helps to pay more than the minimum amount owed each month. Making extra payments, no matter how small, will enable you to pay off your debt quicker and it will make a big difference to the total interest paid on the indebted amount. 

2. Cover education costs

School fees and related expenses (books, uniforms and sports equipment) take a huge chunk out of your finances. Start an education savings plan in year one of your child’s life. The sooner you start the smaller the monthly payments will be to reach the target amount.  A good option is an education plan which allows you to invest an amount on a monthly basis for a specified period and you cannot get access to the funds before the specified period has lapsed. Alternatively you can invest in a good interest bearing savings solution/ vehicle, such as a money market fund with transactional capability linked to it, on a monthly basis and then have the funds available as and when you need it. 

Suggestion: Many school expenses need to be paid at the beginning of the year before your child starts school. To ease the financial pressure, save a specific amount each month for these expenses throughout the year so you have a separate fund to cover schooling expenses when the new year begins. 

3. Get sufficient medical cover

Until they are about four or five, kids spend a lot of time at the GP so take out the best medical cover you can afford. It is best to choose a medical aid that has a savings plan to cover doctors and dentists’ visits, as well as in-hospital care. As a guideline it is not recommended that you spend more than 15 percent of your income on medical cover.

Suggestion:  If you are disciplined in your savings approach, contribute monthly to your own emergency kitty, as opposed to having a savings account linked to your medical aid. This way if you haven’t used it for medical expenses and you really need it for something else it is available to you. 

4. Save for retirement

Save right now for retirement so you can afford to maintain your standard of living during retirement. Set goals and be realistic about how you need to live in retirement and how much it will cost. In addition to your current pension fund, which might not be sufficient for your retirement needs, there are three key retirement solutions/ vehicles that are developed to ensure the best possible inflation-beating growth for your cash over the long-term. There are retirement annuities (which an individual purchases), provident funds (which an employer provides) and preservation funds (which an individual takes out to store provident fund funds after leaving a job). A good financial adviser will be equipped to explain the differences and guide you on choices.

Suggestion: As a guideline as to how much you must save, if you started in your 20s the amount would have been 12,5 percent of your annual salary. Once you reach your 30s the figure increases to 16 percent and in your 40s, a full 27 percent will need to go into your retirement kitty to maintain your lifestyle.