How to build a capsule wardrobe for your finances

In the spirit of Women’s Month, let’s explore your financial planning through the lens of a capsule wardrobe, a timeless collection of essentials that can be adapted as your needs evolve. Just as your clothing staples form the foundation of your style, financial basics form the backbone of a secure and confident life. Once you have these in place, you can accessorise with additional products and strategies as circumstances change.

Start with the basics: underwear and your emergency fund

No wardrobe is complete without reliable underwear, the unseen support that gives you confidence. Similarly, your financial life needs an emergency fund. Life has a way of throwing surprises our way, and having quick access to funds ensures you’re not left exposed.

This safety net could be cash in a bank account, an available credit facility, or extra funds in your access bond. The key is accessibility at short notice. While retirement funds now allow a limited once-off withdrawal from a “Savings Pot,” this should not be mistaken for a true emergency fund. A good rule of thumb is to keep three to six months of expenses set aside.

Eliminate the moths: dealing with debt

Even the most beautiful wardrobe can be destroyed by moths, just as debt can quietly eat away at your finances. Without realising it, your disposable income vanishes, leaving you unable to invest in your future.

The first step is to create a budget. This not only highlights hidden bad habits and ‘cash leaks’ but also shows where you can free up money to strengthen your financial wardrobe. Managing debt gives you more flexibility and ensures the rest of your plan has room to grow.

Your trusty pair of jeans: retirement savings

Denim never goes out of style. A well-fitting pair of jeans is reliable, durable, and built to last – much like retirement savings. Whether it’s through your employer’s retirement fund or a retirement annuity, this long-term investment is a cornerstone of financial security.

Retirement savings bring hidden advantages. Not only do they provide an income in your later years, but they also come with significant tax benefits. You can contribute up to 27.5% of your taxable income annually (capped at R350 000) and enjoy tax deductions. Growth within these funds is also tax-free, which supercharges compound interest over time.

But just as jeans need to fit comfortably, your contributions should be reviewed regularly. Make sure your savings are big enough to let you retire in style and comfort.

The versatile white shirt: your Tax-Free Savings Account

A crisp white shirt works for any occasion, and in your financial wardrobe, that’s your Tax-Free Savings Account (TFSA). It’s versatile, simple, and fits a wide range of goals, from funding your child’s education to saving for a dream holiday or supplementing your retirement income.

The beauty of a TFSA lies in its flexibility. Withdrawals are tax-free, which makes it a powerful tool to combine with taxable retirement income after retirement. By balancing the two, you can stretch your money further while paying less tax.

While it’s best used for long-term growth, your TFSA is accessible should you need it in an emergency. Contributions are limited to R36 000 per year, so the earlier you start, the more you benefit from the compounding effect.

The jacket: protecting yourself with risk cover

When the weather turns, you reach for a jacket. In financial terms, that’s your risk cover, protection against death, disability, or serious illness. But not every jacket suits every occasion.

Many people assume that cover from their employer is enough, but often this ‘basic jacket’ doesn’t provide the full protection your family needs. Review your policies to ensure your dependants will be financially secure if you pass away or that your income can be replaced if illness or disability prevents you from working.

The handbag: your will and estate planning

Every woman knows the importance of a handbag – it carries your essentials and keeps life organised. In your financial wardrobe, this represents your will and estate planning. Without it, chaos can ensue.

A valid will ensures your hard-earned assets go to the right people, prevents delays, and reduces costs. Estate planning can also save taxes, provide liquidity for executor’s fees and other expenses, and avoid unintended consequences. Without a will, your estate is distributed according to the Intestate Succession Act, and if you have minor children, their inheritance is placed in the state-run Guardian’s Fund.

A well-structured estate plan ensures your loved ones are not left scrambling when they need clarity most.

Jewellery: relationships and money

Jewellery often symbolises love and commitment, but before you put a ring on it, talk about money. Finances are one of the leading causes of marital strain. Differences in money habits, histories, or debt levels can strain even the strongest relationship.

Be upfront about your financial expectations and set clear goals together. Make sure you have the correct marriage contract or, if you’re living together without being married, a cohabitation agreement. Without it, you may have little to no legal protection should the relationship end.

All relationships eventually end, whether through separation, divorce, or death, and the right paperwork makes transitions smoother. Love is important, but it should never be your only financial plan.

Bringing it all together

Once you’ve assembled your capsule financial wardrobe, emergency fund, debt management, retirement savings, TFSA, risk cover, and wills, estate, and relationship planning, you have a solid foundation. From there, you can expand with additional products and goals that suit your lifestyle.

And just as a personal stylist helps curate a wardrobe that flatters and fits, a financial planner can ensure your financial wardrobe evolves with you. With the essentials in place, you can step into your financial future with confidence, style, and security.

* Cool is the head of individual consulting strategy - best practice at Alexforbes.

PERSONAL FINANCE