We often think our money problems stem from a lack of money, and that if we just earned more, we would stress less about money. But this isn’t necessarily true. If we managed money better, we would be able to make it stretch and use it to grow wealth over time. Good financial stewardship is about exercising good habits and avoiding the following bad habits, which will keep you poor.
1. You have no proper budget
If you don’t have a budget, you will never get ahead, financially. “Failure to budget keeps people down,” Lettie Mzwinila, the head of independent financial advice at Allan Gray, says.
A budget is a plan for your money and without one, money is impossible to manage. Mzwinila says budgeting over the holiday season is more critical than ever, with most people getting their December salary earlier than usual and having to wait about 45 days for their January salary.
According to research by TymeBank, only 37% of us draw up a budget and stick to it. The majority of those who do so are women aged between 25 and 45 who earn less than R10,000 a month. Shockingly, 36% of us use a “loose mental budget” and 19% of us draw up a budget but don’t stick to it.
Your budget should be realistic, and it need not be a spreadsheet, says Silindile Ngubo, a fund accountant at Cannon Asset Managers. “I work with spreadsheets all day, every day and my budget is a very simple one, in pen on paper, which makes more sense to me. Savings and investments are line items on my budget.”
2. You have no emergency fund
Without an emergency fund, every time you have an emergency expense – and we all have them – you will have to borrow money.
You don’t want to be hunting for a loan when you’re in a crisis and don’t have time to think through your options and negotiate a good interest rate.
Your emergency fund should ideally have enough to cover three months of expenses. The beauty of an emergency fund is that it earns you interest instead of costing you interest.
3. You’re living beyond your means
It’s so easy to fall into this trap. We buy into the lie that stuff equals happiness, and that if I drive that car, I’ll feel that much better about myself, or if I buy those designer jeans I’ll look that much better in demin.
Sydney Sekese, a senior investment specialist at Old Mutual Corporate, says we’re all prone to buying on impulse and emotional spending. This type of buying has less to do with what we need and more to do with how a particular purchase makes us feel.
He says if we budget properly, we wouldn’t live beyond our means. “We should think of budgeting as part of our well-being rather than seeing it as a chore. It should be a way of life.”
4. You’re driving a costly car
For many South Africans a car is a necessity – and a status symbol. An expensive car can be a debt trap, especially if there’s a balloon payment due by you at the end of the credit agreement.
Just because the bank says you qualify for credit of, say R200,000, doesn’t mean you should buy for that amount. The cost of running a car is huge when you factor in the cost of fuel, insurance and maintenance.
Assuming you buy for R200,000 and you get offered interest at a rate of 13% (which is almost half the maximum of 23.5% that you can be charged for vehicle finance) your instalment will be R4,108 a month over the next 72 months. If you buy for R50,000 less, your instalment will R3,104 a month.
5. Your credit is killing you
There’s a cap on how much interest lenders can charge for credit – whether it’s a micro loan, personal loan, vehicle finance or credit card you’re using – but you shouldn’t be paying the maximum rate.
The better you are at managing your debts, the better the rate that you qualify for. If you have a good credit score, you must negotiate for the best rates.
And if you have no option but to use credit, use the right product for your purchase. For example, a micro loan (also known as a short-term loan) attracts interest at 5% a month, making it the most expensive form of credit. A personal loan attracts interest of up to 27.5% a year and a credit card attracts interest of up to 20.5%.
“You’re never going to get ahead if you are paying interest. You need to be earning interest,” Ngubo says. “I pay extra into my home loan whenever I can, even if it’s as little as R50 extra, because it will save me interest over the long term.”
6. You aren’t investing
Many people fail to invest because they don’t understand the difference between saving and investing, and investing is daunting for beginners. But it need not be when you can be guided by a financial adviser or a robo adviser.
Robo advice is essentially guided online investing and it is regulated. “The purpose of a roboadviser is to help people make great investment decisions without having to know everything about investing,” Grant Locke, the head of OUTvest, says.
“We build in the latest investment thinking into the platform in such a way that anyone can use it and make it easy for them to invest like professionals.
“One of the most fundamental shifts in the investment industry is to start focusing on getting clients to reach their investment objectives, in other words, the outcomes that matter to them, be it a retirement, a child’s education, or wealth creation.”
Mzwinila recommends that you name your investment accounts – for example, emergency savings, Thabo’s education fund, my retirement plan, etc – because doing so will keep you aligned to your goal and less inclined to abandon it. “Never borrow from your retirement plan because you’re taking from your future self and will never make up [for the loss in] that growth.”
7. You’re trying to keep up with the Khumalos
On Instagram and Facebook, most of your friends are living their “best lives”. But in reality, they aren’t. Social media lends itself to image crafting and posing, which in turn fuels envy and discontent. No one is living the perfect life.
Social media produces a pressure to try to emulate a lifestyle we can’t afford, says Lee Hancox, the head of channel and segment marketing at Sanlam. It encourages us to “live in the moment” instead of thinking about the long-term consequences of decisions.
Hancox says keeping up with the Khumalos is a terrible mistake, which many couples make by hosting a flashy wedding, only to spend the first five years of marriage paying off their wedding day.
Working with a qualified, independent financial planner, who has created a financial plan that will help you achieve your life’s goals, is one way that you can avoid the comparisons trap.
8. You aren’t exploiting all your employee benefits
Many employers provide full-time employees with benefits such as an employer contribution to a pension fund and medical scheme, cover in the event of your death or disability, and a funeral benefit.
Group cover is often the cheapest cover you can get, so make sure you are using this cover to the fullest extent. A medical scheme set up for employees of your company may well be cheaper for you than joining a scheme open to everyone which has an associated loyalty programme with discounted gym membership.
Life cover offered on a group scheme may not be adequate, but it can give you a good base. When you top it up, make sure your adviser understands your group benefits and you pay only for complementary, rather than overlapping cover.
Similarly consider a group funeral benefit rather than taking it out in your own name and use cheaper life cover rather than insuring your life with funeral cover.
Get an adviser to help you find out from your company’s human resources department what employee benefits you enjoy.
9. You have only one income
With the rapid pace of change in the world today, companies are evolving and downsizing all the time. No one can afford to be wholly reliant on their employer for an income. You need more than one source of income to spread your risk.
Research by Old Mutual has found a growing number of working people, particularly in the middle- to upper income brackets, are supplementing their incomes by having more than one job. An extra job is called a side hustle and it’s a global phenomenon, according to the life assurer.
Consider your skills or talents that you can use to generate an extra income. The smart thing to do is invest the money you earn from your side hustle.
10. You splash out on gifts
It might make you feel great to give lavish gifts, but if you can’t afford it, you will regret it, and a host of other negative emotions often come with regret.
Realise that there are expectations associated with big occasions such as Christmas, weddings, birthdays and other celebrations. Some expectations are more reasonable than others, so you need to manage them to ensure that you don’t become a slave to other people’s expectations and that your giving is appropriate. Budget for gift giving and resist the temptation to exceed the budget as it robs you of what you could save or invest.
Ngubo admits that gift giving is her love language and that without a budget, she would be blowing money on gifts for friends and family. “Money is an issue for everyone and with no bonuses this year, and many family members relying on me, I have to prioritise – and be creative with my gift giving.”