Growing up, many of us received sound advice from our parents: study hard, set goals, and take care of your health and money. This advice serves us well, but when it comes to our money, some more detail and some less conventional truths can go a long way towards a brighter financial future.
Not all types of debt are negative
The word debt often carries a negative connotation, but not all debt is ‘bad’. Before borrowing any money, it is critical to understand the difference between ‘good’ and ‘bad’ debt. For instance, taking out a student loan can be an investment in your future, but having to pay off unnecessary, high-interest credit card debt can hinder your financial progress.
Managing your debt and other financial commitments, like your phone and gym contracts, is also important. Making your payments on time and in full every month helps to build a healthy credit history, which in turn will stand you in good stead when you need a loan for something ‘good’ – like a car of your own.
Sales are not the problem; impulse buying is
Sales and discounts can be tempting, but before you splash out, it is essential to differentiate between a ‘need’ and a ‘want’. If you were already planning to buy something you need, and you find it on sale, that is a win. However, buying something you want, solely because it is marked down, could put you in a losing position, especially if you cannot pay cash for it.
Compound interest is one of the most beneficial financial concepts you can understand
Many of us do not fully understand or underestimate the power of compound interest, which leads to starting our savings later than we should. It is important to begin saving money in an interest-bearing account or investment fund as soon as possible, even if the initial amount is small. For example, if you save R500 per month for two years, accumulating a total of R12,000, and the interest rate is a flat 10%, your savings would grow to R13,273. On the other hand, if you save R100 per month for ten years (also totaling R12,000), your savings would increase to R20,146. This significant growth is due entirely to the benefits of compound interest.
Your greatest asset is your capacity to generate income
While assets like your home or car are indeed valuable, the reality is that you likely would not be able to pay for them if you were unable to earn an income. So, just like you insure your valuable belongings, you should also insure your income. Income protection can provide up to 100% of your insured income if you cannot work due to injury or illness, ensuring that you can still meet your financial obligations during this time. It should be every working South African’s top financial priority.
Traditional funeral cover has limitations
Ensuring that our funeral expenses are covered and that our loved ones receive the send-off they deserve is something most of us take very seriously. However, the challenge is that funeral cover is, on average, eight times more expensive per rand of coverage compared to underwritten life insurance, while also offering significantly lower coverage amounts. Underwritten life insurance provides much more coverage and allows you to include your family on a single policy that takes effect from day one, all at a premium tailored to your circumstances.
Earning a salary is not enough; you also need a plan and a partner
It is misguided to think that a steady income is all you need for financial security. If you do not also have a sound financial plan, you may never achieve financial stability. While traditional wisdom will always have its place, partnering with a qualified financial advisor is the best way to set and achieve financial goals from your very first pay cheque to the day you retire, and all the days thereafter.
Article by: Melody Cloete is a training specialist at Bidvest Life.
