Retrenchments, salary cuts and a shrinking economy are some of the woes brought on by Covid-19 that put immense pressure on our personal finances. 

According to Sam Beckbessinger, a finance expert and author of Manage Your Money like a F*cking Grownup: The Best Money Advice You Never Got, the first step to wrangling in your finances is having accurate data about what you’re spending your money on. 

“Install an app like 22seven or get a spreadsheet. Whatever you do, start tracking where your money is going every month,” said Beckbessinger. 

She sat down for a Daily Maverick webinar on Wednesday with Business Maverick journalist Ray Mahlaka. 

22seven is a free local app from Old Mutual that helps you budget and invest your money. Similar free apps are moneysmart and My Financial Life from Nedbank. 

Beckbessinger said it’s important to know your “personal runway”, which is the number of months you will be financially secure if your income stops today. To do this involves calculating the difference between your income and expenses and tracking how much savings or emergency money you have. 

“That, for most of us in these times, is the number we need to know off the top of our heads.” 

The next step is to save one month’s worth of expenses even before you start tackling your high-interest debt. When paying off debt, she suggests starting with the smaller amounts you owe and working your way up if you have multiple debts to pay off.

“We’re not talking about your home loan, we’re talking about credit cards, store cards and personal loans.” 

Once that’s ticked off, the next step is to bulk up your emergency fund to three months’worth of expenses – if you have a regular income and don’t have a home loan – and six months if you have an irregular income (freelancers, for example). 

It is vital to save simultaneously for retirement.

“It’s important to start early. Every single month that you wait has an enormous cost at the end of the day,” said Beckbessinger. 

She advised that half of the age at which you start saving for retirement is the percentage of your income you should contribute. So if you start saving at 30, you should save 15% of your monthly income. Starting younger means putting away a smaller chunk each month. 

And this is all to reap the optimum benefits of compound interest, for which time is the most important variable. 

Another rule of thumb – which she doesn’t ascribe to – is the 50:30:20 rule, where 50% of income goes towards basic needs, 30% to luxuries and 20% to savings. Beckbessinger said 20% might be an overwhelming amount to put away if you’ve never built up your savings and advised saving what you can and building on that amount year-on-year. 

She stressed the importance of aligning your spending with your values. “Spend money on things that bring you joy and meaning.” For example, owning a home may not be a priority for everyone, though many believe it is a vital asset.

“Purely as a financial decision, a lot of people get tricked into thinking of their house as an investment when a house is usually not a very good investment for most people.” 

According to data from FNB, the average price growth for homes in South Africa was 3.5% year-on-year for approximately the past 10 years. Most people have lost money on their homes due to inflation. 

“The real problem is… you are taking a huge chunk of your wealth and you are locking it up in a single asset and you might get very lucky or you might get very unlucky.” 

She said it is a danger thinking of your home as the main asset which you will sell one day to fund your retirement. Compared internationally, the cost of buying and selling a home in South Africa is high. Because of that, on average you have to live in a house for nine years before it becomes cheaper for you to have purchased rather than rented it. 

The website The Rolling Alpha has a calculator where you can work this out.   

If buying a home is of value to you, she suggests purchasing a house at the lower end of what you can afford and investing rather in something more diversified, like shares or an exchange-traded fund.

Purchasing a car is also a “values” toss-up. “If you can, it is always better to buy a car cash,” she said. “A car is not an asset. It’s a lifestyle asset actually and the best you can hope for is it retains its value.” 

She suggests getting a good second-hand deal. New cars depreciate significantly within the first year of purchase, in some cases by up to 50% of their purchase price.

When asked about when to get life insurance, Beckbessinger said getting an income protection policy was more important, unless you have dependents, in which case life insurance is necessary. 

“Worry about insuring your most important asset, which is your ability to earn an income.” DM

Manage Your Money like a F*cking Grownup: The Best Money Advice You Never Got is available for order from the Daily Maverick shop.