By Essie Bester
From a financial point of view your thirties is the most critical period in your life. You are just out of the learning phase of your twenties and it is now time to implement strategies that can radically improve your future financial position.
The financial tycoon Warren Buffet guarantees that your finances will show a notable year-on-year improvement if you succeed in avoiding most of the following money blunders in your 30s.
- The use of credit cards
It becomes a habit to use this little piece of plastic to pay for items when your income doesn’t stretch that far. But, while a credit card is handy and offers certain real advantages (which can even look like a clever strategy), it is not called revolving debt for nothing ─ it is devised with the intention of keeping you chained to debt. Now is the time to break with the habit. Pay the balance on your credit card and get rid of it.
- You and your life partner are on different financial tracks
It is important that you think the same about money. With the same goal in mind your efforts will double and the goal will be achieved sooner. At least once a year determine where you are on the financial spectrum and discuss plans for the future.
- Buying a house that you cannot really afford
The bond industry has a rule that not more than 28% of your net monthly income (your total monthly remuneration before deductions) should go to housing. Your total debts (including house instalment) should not exceed 36% of your net monthly income.
Many people buy the most expensive house they can afford without realising that other expenses (such as homeowner’s insurance) are automatically also going to be higher. It is better to buy a house in a lower price bracket as this will allow you to save more money. This also gives you the peace of mind that you will still be able to afford your home instalment with ease should you lose one source of income.
- Buying a car that you cannot really afford
New cars are expensive and usually lose about 50% of their value within the first three years. Buying a good used car can halve your monthly car instalment and give you more money to save.
- Lavish lifestyle
Control this expenditure by drawing up a budget. If you find that entertainment costs you a lot, you must determine how much you spend on it every month, cut it in half and try to make do with that. Develop the discipline of saving the difference.
- Expensive friends
Friends who easily spend money will probably tempt you to keep up with them. Try to get your social circle to focus on cheaper activities or get less wasteful friends.
- You do not invest or you don’t invest enough
The time value of money is a critical dynamic that you must get to work in your favour. See to it that you know how compound interest works. As a young person you have an enormous opportunity to build wealth. You have a wonderful asset, i.e. time, that can work in your favour thanks to compound interest.
- You invest too conservatively
People are often overly cautious and scared of losing money in volatile markets. For that reason they only use conservative investments such as bonds and deposits. This is a mistake that you cannot afford. This is never going to produce the yield you need. Consult a good financial adviser and invest more aggressively while you’re still young.
- Not getting the full benefit from your retirement plan
Too few South Africans plan for retirement while they are still young. Studies prove that the first ten years count most when it comes to retirement savings thanks to the advantage or compound growth ─ even if you contribute relatively little at the start of your working career.
If you have a job and the option of a pension fund where your employer pay half of it monthly, jump at it. Together with compound interest this could mean millions of rands come retirement.
Experts advise that 25-year-olds save between 15% and 17% of their salary for retirement. If they wait until they are 30, they need to save 22%. Retirement pocket computers that will make it easy for you to get a good indication of where you stand at the moment are available on various websites.
- Not to plan for your children’s studies
The cost of education is rising faster than inflation. If you don’t start saving now, your dream of seeing your little one graduate someday will just get more and more unreachable. Use educational aids and a qualified financial adviser to help you determine how much you have to save every month for your child’s tertiary education and studies and increase the amount every year.
Experts say parents are increasingly going for tax-free savings plans for their children’s studies. The biggest plus point of this is that no dividend, income or capital-gains tax is paid on this income. Other savings options are unit trusts, savings policies, a bank savings account at Fundisa ─ a state-aided saving scheme that focuses on education (available to South Africans whose income does not exceed R180 000 a year). Visit one of the three participating banks (Standard Bank, ABSA or Nedbank), or download an application form from Fundisa’s website at www.asisa.co.za/fundisa.
Hoe vroeër, hoe beter https://www.pressreader.com/south-africa/beeld/20181020/281960313728458