“The hardest thing in the world to understand is the income tax.” – Albert Einstein

So, now that you’ve decided to get your finances in order, where do you start? Well, the road to freedom needs the following basics:

Insurance

One thing that works for me is to only have insurance against serious losses I cannot cover myself. If you can cover the loss, you don’t need insurance. For example, I’ve been using the same computer for over five years. It’s not insured simply because if anything were to happen to it, I could afford to get a new one. By not having insurance, I don’t have to fork out overhead costs that would be passed on to me.

Besides, covering everything on an entry-level salary is impossible so you’re going to have to set priorities. Consider health insurance (mostly for emergency hospitalisation if you’re healthy, but also for medicines and doctors if not), short-term property insurance (for things you can’t afford to replace), and long-term life/disability insurance (if you have others who depend on you).

It is better to handle personal issues (such as healthcare or life cover) through a qualified broker. Things like property insurance are easier (and cheaper) when you deal directly with the insurance company. Again, this ensures you make the right decisions and don’t spend more than you absolutely need to in the process.

Taxes

It is important that you are saving in a tax-efficient way. Saving tax legitimately is one way you can increase your returns without increasing risk. However, saving tax should not be the driver of your decisions. It should simply be one of those pleasant side effects. All this depends on where you live so it’s best to consult an expert when it comes to making decisions. That way you don’t find yourself excited at a tax refund when all you’ve done is loaned the government money interest-free. Besides, if they money you an expert is less than the money you end up saving, you both win. Now who doesn’t want that?

(To download your completely free copy of the South African or International edition of Work in Progress, right-click and save the relevant link. Then open, enjoy, and repeat as needed.)