Ryon Phernambucq | 04 October 2023
Ryon Phernambucq is an associate financial planner at Fiscal. He has a BCom in Investment Management and Banking and has completed his Postgraduate Diploma in Financial Planning Law.
Debt's grip on your future can be stifling, making you work hard to pay for the past instead of enjoying the present.
Escaping this cycle may seem difficult so a strategic approach, taking action with micro-steps, can be useful.
US personal finance radio personality and author Dave Ramsey drew up seven baby steps to help Americans tackle their finances. Here is a South African take on those steps.
Taking one small action repeatedly, over long periods of time adds up. It provides the compounding effect of incremental progress and it’s awesome.
Here are seven micro steps that can pave the way to financial success:
Micro action 1: Starter emergency fund
While a starter emergency fund isn't sufficient for major life emergencies, it can 
be a buffer between you and life's uncertainties. Start by setting aside R5 000 to ensure that you don’t need to borrow for emergencies up to this amount.
Try to complete this step in around 30 to 60 days. How can you source the necessary funds? The answer lies in budgeting - a way to intentionally allocate your spending.
Micro action 2: Debt snowball
Step two involves paying off all your debts, excluding your home loan, using the debt snowball method. Most people can complete this step within 18 to 24 months.
Here's how it works: organise your debts from smallest to largest, regardless of interest rates. Concentrate on the smallest balance first. Attack this debt with additional repayments while making minimum payments on the others. Create the financial margin to do this by spending less, earning more, budgeting, or even taking on an additional job if necessary.
Crush that debt as quickly as possible. If you channel all your efforts into the smallest debt, you will be amazed how rapidly you can pay it off.
Once the smallest debt is cleared, allocate the freed repayment to the next smallest debt and so on. This creates traction and momentum.
With the second debt paid, the snowball gains momentum, growing larger with each debt you eliminate. This is possible because the repayments you freed up are then allocated towards the next biggest debt.
You might be wondering, “Shouldn’t we focus on the debt with the highest interest rate first, since that would save the most interest?” While that is a way you can pay off debt, your main aim is to completely get rid of all the debt you owe.
If you put your money towards debts where you can quickly pay off the remaining amount, and then move on to the next debt, you will build up a strong sense of progress. This approach helps you gain momentum as you work to successfully to eliminate all your shorter-term debts.
Micro action 3: Fully funded emergency fund
Once your debt is history, save three to six months’ worth of expenses. Storms will come, but your well-stocked emergency fund will ensure you’re ready to weather them without falling back into debt. Aim to complete this step within six months after paying off all debts.
Micro action 4: Investing for the future
Consider putting aside at least 10% or even up to 27.5% of your annual income 
into a retirement fund. It's important to note that your contributions to retirement funds can lower your taxable income while also building a nest egg for your retirement years.
When you're deciding how much to invest, think about what you can comfortably save, while also keeping in mind that you'll want some flexibility to make investment contributions for steps five to seven.
Micro action 5: Discretionary savings
Discretionary savings is the money you save beyond what you put into 
retirement funds, and property investments. These savings can be made in various ways, such as investing in unit trusts, utilising tax-free savings accounts, or investing in endowments, provided you if you are comfortable with investing for a fixed period.
The beauty of discretionary investments is that they offer convenient access to your funds and more flexibility in how you invest. You can use these funds to enhance your income or cover planned expenses such as family holidays, education costs, or even buying a new home or car.
Micro action 6: Paying off the house early
Homeownership dreams materialise as you prioritise paying off your house ahead of schedule. This step, though ambitious, can yield substantial interest savings and accelerate your journey to financial independence. People who follow this step typically end up paying off their house somewhere between seven and 10 years.
Micro action 7: Building wealth and giving
The final step is to continue building wealth and giving generously. Your income is a potent tool for growth, and at this stage, you have the power to make a lasting impact through both your financial security and your capacity to give.
As you navigate this transformative journey, it's essential to remember that each step contributes to a bigger picture of financial well-being. Your perspective emphasises not only the practicality, but also the relatability of these steps.
By implementing these principles, you're not just saving and making millions; you're crafting a life of financial peace, security, and generosity.
