When it comes to managing your finances, it’s not how much you have, but what you do with it that counts, as is evidenced by America’s most unassuming billionaire Warren Buffet at one end of the scale, and the multi-millionaire celebrities and sports people who have had to declare bankruptcy, at the other end.

If you ever did accounting at school, you may have been taught that your “assets = owner’s equity + liabilities” or turned around, your equity = your assets – your liabilities; in more layman’s terms, that translates to having enough assets as collateral for your debts.

For many of the celebrities and sportspeople who have been declared insolvent over the years, it seems to have boiled down to one thing – not understanding money and the effect it had on their lives – when the cash came in, it seemed as if there was nothing that could stop them:

  • Wesley Snipes – the major star in the “Blade” movies squandered most of what he made and was arrested for tax evasion
  • Michael Jackson’s Neverland home cost over $10 million a year to maintain
  • Nicholas Cage bought mansions, jets boats and cars until he discovered he was $14 million in debt
  • Our own Victor Matfield had to pay R1 million towards a failed business venture
  • Former Bafana Bafana star Phil Masinga, famous for his lavish parties, luxury cars and multi-million rand house, is now reported to have sold many of his personal possessions and is living in the back room of his mother’s house.

Although the average person doesn’t have to manage the immense amounts of money that these celebs did, the concept remains the same – you need a financial plan in place that takes care of these three areas in case something happens to you:

  • Your current needs – monthly bills
  • Your unexpected needs – life, dread disease or disability
  • Your future needs – savings and retirement
  • Your first step is to put a budget together – the easiest way to do this is to write down your expenses – all of them, including an amount for entertainment – then take this amount away from your income.

If your plan doesn’t include the unexpected or future needs, then relook your budget as you should have the cover in the form of life, dread and/or disability as well as car and/or home insurance to short and long term savings and retirement planning, which will all ensure you have the finances to manage any eventuality, from being diagnosed with a dread disease to being able to live well in your golden years.

If you don’t know how much you may need, or can afford, complete a Financial Needs Analysis that will tell how much you need for the unexpected, as well as how much you should be investing for the future.

Lastly, although not technically part of a financial plan, it is also a good idea to take an interest in money matters such as learning about bank charges, interest and repo rates, CPI reports etc. as these can all help you understand how you can make your money work for you.