Five financial blunders that can set you back

Five financial blunders that can set you back

Last updated on 12th December, 2017 at 04:11 pm

Financial independence means not being shackled by debt and being able to live comfortably on the money that you have saved and invested. It is achievable, but there are some key mistakes to avoid.

 

Mistake #1: Making poor investment decisions

Many people in South Africa don’t plan and save adequately for their retirement. There are many reasons for this, including not saving early enough and drawing on your pension before retirement age. If you don’t save from the first time you are employed, you’ll lose out on the magic of compound interest (the interest gained on your interest) and ultimately save less for your retirement.

While it’s not possible to draw on your pension before retirement age, you are able to cash it in if you switch jobs. This is often where people dip into their pension pot. But what they often tend to forget is that there’s nothing left for retirement. Investing too conservatively can also stop you from achieving your financial goals. If you only stick to cash investments, then you’ll never beat inflation and your money is unlikely to grow. Speak to a financial planner who can help you meet your financial goals.

 

Mistake #2: Buying an expensive home

A fancy home with rolling lawns could impress your colleagues and friends, but it can put a huge strain on your finances. Have you considered the maintenance and upkeep of your property? What about the insurance? Bigger homes also mean bigger bills when it comes to fixing things. As a result, you could have little money left over at the end of the month to put towards savings or your retirement fund. Rather buy a smaller property, and see how well you are able to manage it and all the associated costs before you buy something bigger.

 

Mistake #3: Buying an expensive car

It can be really tempting to buy a flashy car but this can be expensive. Again, can you afford the repayments, insurance and the maintenance? Unlike homes, cars generally depreciate in value. So once you drive off the showroom floor, your car is worth less than what you bought it for. Think carefully before making a car purchase. Rather go for a sought-after used model that has all the necessary features and won’t lose its value quickly.

 

Mistake #4: Making poor purchase decisions with your credit card

Have you ever heard of the terms ‘good debt and bad debt’? Good debt is when you borrow money for something that will benefit you in the long term (eg a home). Bad debt is when you borrow money for items that don’t last, like food and entertainment. Don’t whip out your credit card for every purchase. Rather stick to paying cash as far as possible. Ask yourself if you really need the item you are about to buy and, more importantly, if you can afford it.

 

Mistake #5: Not paying your debts

When accounts and bills arrive, it’s easy to ignore them. But if you don’t pay off your debts, it can land you in a heap of trouble. You could end up paying penalties, more interest or being refused further credit. There’s also a possibility that you could lose your home or other assets. Make sure you pay on time and ideally pay off the debt entirely. You could even save on paying interest if you do so!

 

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