The building blocks of financial success

There are people who believe that money cannot buy you happiness. But for a fact it can bring a sense of security to you if you follow the right money management practices. It is also a fact that without a handle on your money management, your life will always be one step away from a financial cliff, and that will bring you misery. The reality of life is that we all need money, either for business, school fees, building homes and many other uses. However, not all of us can afford to do all these by financing from the pocket. This is why the banks are trusted partners in assisting customers at every stage of their lives. Without a plan, it is extremely easy to find yourself short on money because it is easy to overspend. Afterall, the treat-yourself logic is tempting to embrace. If you say yes to too many unnecessary expenses, you might be disappointed with your finances. In order to combat this, take the time to make a budget. Spend wisely If you were to look back on how you spent your last salary, how would you say you did? Did you spend needs or wants? Most people spend their money on wants because they fail to clearly separate their needs In economic terms, a “need” is generally referred to as something that is necessary for a person to survive. If a need is not met, it may lead to the onset of disease, inability to function effectively and efficiently in society or even death. Examples of needs are clothing and accommodation. On the other hand, a “ want ” is everything else outside a “need.” A want is something you would like to have but don’t necessarily need. A good example might be you wanting to buy the latest BMW when you already have a previous model BMW functioning perfectly. Do you ever ask yourself how much money you spend monthly on new clothes and shoes when you already have a closet full of clothes? The fancy clothes are not needs because you canithout them. They are just ‘nice to have’ things So we can safely say a need is a ‘must have’ while a want is something that would be ‘nice to have.’ Spending a lot of money on wants limits your chances of financial success and fruitful spending through which you can achieve long-term goals. For effective budgeting and spending, you need a financial plan that will guide you on how to spend on needs and wants. A financial plan will inform you how you ought to view, spend and save your money. It can help you determine where you are going with your money. It will teach you to pay off any unnecessary debts while you save for the big milestones such as building or buying a house. Before you spend on something, there are a few key questions that you must ask yourself. “Do I really need this or it is just a ‘nice-to-have?’ Do I really have enough money to spend on the ‘nice-to-have?’ Can I do without that item for sometime?” Also ask yourself if you need it immediately. How long you intend to use it or whether it is just for one-off usage. These questions will make it easier for you to distinguish between your needs and wants and thereby to use your finances prudently by curbing unnecessary expenses. Respect your financial plan People who are successful at setting goals and achieving them are those who create a financial plan and follow it. If you want financial security, having a good plan is the only way to achieve it. It is advisable to start by discovering where your money goes. The first and most important step to creating a financial plan is to develop a budget that details where your money goes. Every time you spend money, make a note detailing what you bought and how much it cost, as well as the purpose of the item you just bought. This will help you track your weekly and monthly spending. It will also inform you regarding how much money you spend on the ‘must-haves’ and the ‘nice-to-haves.’ After about two to three months, you will have a good idea of your spending pattern. Set f inancial g oals After establishing your money trail, you will know the unnecessary expenditures you make. You will realise that sometimes it is fine to spend money on wants such as nice clothes. However, wants should come under a different category of your budget and only be bought when money has been put aside for them. You will realise that the cumulative amounts of money you spend on wants can actually make a downpayment on a car or a house, which will be a long-term achievement. After this wake-up call, ask yourself a simple question: "Where do I want to be in in the medium to long term?” Answer with more specificity: "I want to own a house with the mortgage half paid off” or “I want to have a savings account with P300 000.” Be specific and realistic in setting your goals. If you want to succeed, you have to start out with attainable, specific goals. G uard your credit record Credit scores or credit records need to be guarded. Credit is important for most people, but once a credit record is tainted, it can be difficult to restore. Studies show that more than 80 percent of the working population in the world needs credit and without credit it would be difficult for them to achieve some of life’s milestones. It is therefore important to understand that one should not borrow money for unnecessary spending such as ‘having a nice time.’ When getting credit, make sure it is for something that you need but you should never over-commit. For example, if you want to purchase a car and the car costs P250 000 while you qualify for P350 000, do not get the maximum sum because it will cost more in repayments. Only request amount that you need in order to avoid defaulting because of financial pressure. It is crucial to understand that after the credit has been granted, late payments damage your credit rating. This is more significant on home loans and vehicle financing. Paying in advance or within the due date earns you credibility with the creditor. But we do understand that ‘life happens’ and therefore one can find oneself unable to honour one’s loan repayment schedules. A significant number of Batswana are over-indebted. However, it is important to know that banks are willing to assist. The key is to communicate with your creditor. Banks offer payment plans that will benefit you and keep you in good standing. A bank could be willing to freeze your instalments for three months or reduce your instalments to allow you time to recover. Communicating with your bank shows loyalty and responsibility for your debts. In preparation of the unforeseen, such as losing your job, it is recommended that you take out insurance such as a Retrenchment Cover. This insurance will help pay out your loan for a minimum of six months to a year or the outstanding balance of the loan, depending on the agreement and loan type. This will buy you time while you work on getting your life back on track. Customers should know that should they find themselves in situations where they are unable to fulfil their financial obligations to the bank, it is important to manage your banker by constantly apprising them of the situation because the bank will try to mitigate. However, mitigating the situation at times fails and the bank will need to recover its money. This is usually outsourced to debt agencies that will motivate you to pay through constant communication. The final stage is usually litigation, which can result in “in the matter between” and lead to auctioning of property or foreclosure. It should, however, be understood that the bank will not rush to sell your assets because we understand and appreciate that you are struggling. We will therefore do our best to minimise or cushion the cost. Key learnings for customers It is important to have an open relationship with your bank because when you encounter a situation that makes it difficult for you to repay your loan, you should engage your banker immediately (transparency is key). This builds trust and the bank is able to help you manage your situation. Boga Chilinde-Masebu is the Communications & PR Manager at FNBB

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The building blocks of financial success

It is important to have an open relationship with your bank because when you encounter a situation that makes it difficult for you to repay your loan, you should engage your banker immediately (transparency is key). This builds trust and the bank is able to help you manage your situation.

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The building blocks of financial success

It is important to have an open relationship with your bank because when you encounter a situation that makes it difficult for you to repay your loan, you should engage your banker immediately (transparency is key). This builds trust and the bank is able to help you manage your situation.

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