Ken Macpherson, independent financial planner and
the Financial Planning Institute's Financial Planner of
the Year 2002 (Gauteng Region) and Chris Busschau,
senior manager: executive support of Standard Bank
Financial Consultancy, share their knowledge.
1. Get rid of debt
When you borrow money from banks or micro-lenders, you end
up paying high interest. Always try to pay more than the required
instalment each month to eliminate debt faster and avoid the
months or even years of interest you'll otherwise pay.
2. Avoid paying companies to get you out of debt
If you're in fi nancial difficulty as a result of debt, contact all your
creditors to discuss your problem. You'll usually find them quite
amenable to making an arrangement for you to repay them at a
manageable rate every month.
This is better than approaching a debt consolidator or other
business to act on your behalf, as you'll almost always wind up
paying them fees and interest over and above your debts!
3. Buy a house
Owning your own home is one of the best investments you can
make. By buying instead of renting a home, the money you pay
each month pays off your own bond, not someone else's.
4. Pay off your bond
If you have a 20-year bond on your home, you'll end up paying
about two to three times the original price of the house in interest
charges. So make a point of paying extra into your bond account
each month – use as much as possible of your bonus too. Your
bank will calculate how much you'll save in interest and time
to repay.
5. Buying a new car
Driving around in a smart new car does wonders for one's ego.
Unfortunately, cars grow "old" with use and while the initial joy
wears off, the monthly instalments don't. As with buying a house,
you pay a fortune in interest charges, so always pay more than the
required instalment. Rather try to purchase a good second-hand
car – it looks and feels good, is a lot cheaper and you'll pay much
less interest.
6. Save and invest
Instead of blowing your entire salary each month on an outfit or
shoes, save, save, save!
7. Money in a bottle
US fi nancial guru Suze Orman's advice to break a note each time
you make a purchase – yes, even for a loaf of bread! – and empty
your change into a bottle every night certainly adds up when it
comes to saving money. Save silver change only – use the coppers
to tip hard-working security guards who look after your car.
8. Savings accounts
Make sure you manage to save up to three times your monthly salary to pay for unexpected expenses like car repairs and medical
fees and to replace household goods that "pack up". Banks offer a
number of savings options: be sure to check out both interest rates
offered and bank charges. A minimum deposit is usually required
in order to avoid bank charges, so make sure these charges don't
amount to more than the interest you earn.
8. Fixed-deposit accounts
These are ideal to save money towards a car, kids' education or a
dream holiday. Agree to invest your money for a year or longer in
order to receive a higher guaranteed interest rate.
9. Notice deposit accounts
These allow you to deposit money for an indefinite period, with
the facility of giving 32 days' notice when you decide to disinvest.
Interest rates on these deposits fl uctuate as rates move in the
marketplace, but will be set for the 32 days once notice has been
given. You'll also have more access to your money than with a
fixed deposit.
10. Money market accounts
These enable you to participate in a mixture of wholesale fixed-interest
investments – usually only available if you have large
amounts to invest – and to benefit from the more attractive rates
applicable. They provide higher returns than savings accounts
and capital is accessible.
11. Unit trust funds
Usually recommended for longer-term investing (five years and
more). There are hundreds of different types of funds available,
the most popular being equity (shares) or managed funds (shares,
bonds, property and cash). Over the longer term, they've given
higher returns than interest-bearing deposits, but there are market
risks involved, so discuss your options with a knowledgeable
advisor before you invest.
12-16 Life assurance company products
Financial advisor Shannon Clark from Hallmark Financial
Services offers the following savings tips:
Income protection policies: protect you from loss of income
resulting from illness, temporary or permanent disability.
The contributions to these policies are tax-deductible, which
means the SA Revenue Service is effectively subsidising
the contribution.
Life and disability policies: save you and your dependants
from suffering a lower standard of living should the unexpected
happen. There are benefits that can be added specifically for
women (eg, for pregnancy-related diseases), so you don't deplete
your savings to fund these unforeseen events.
Endowment policies: are investment policies if you have an
investment horizon of at least five years and offer a tax-free lump
sum pay-out. They're excellent investments for goals such as
saving for a child's education.
Retirement annuities are personally owned pension funds and
are one of the most valuable personal savings tools. Contributions
are tax-deductible and are protected assets (which means they can
never be taken away from you by a creditor). At retirement you
have the option of taking one-third of the value as a lump sum
(of which at least R120 000 will be tax-free), while the remaining
funds will be used to purchase a pension.
Preservation funds are important tools to be utilised when you
resign from company pension or provident funds. They allow for
the tax-free transfer of your fund benefits to a personal retirement
savings vehicle.
Image: Fairlady/ Jacques Stander