DURBAN - Some financial mistakes can offer lessons to people that can learn from whilst others can have long-lasting consequences.
According to Priya Naicker, Advice Manager at Old Mutual Personal Finance, financial blunders can be painful, but it is better to make them or observe them around you to ensure that the mistakes become lessons into better financial practices.
Naicker said, "Most South Africans, have become accustomed to economic uncertainty and change. Unfortunately, this means many of us have become escapists or denialists when it comes to money matters".
Here are six financial mistakes to learn from:
Not protecting your income
Steven*, an accountant from Randburg said, “I was confident that my career would take off quickly and I expected to land my dream job in no time. Imagine my shock when I got retrenched! I wished I had acted on my financial advisor’s recommendation to take out income protection with retrenchment cover. I had no income while I was looking for a job and had to rely on family members to get me through this difficult time."
Postponing for the future
Amanda*, a store manager and a mother of a 25-year-old said that when I found out that I was pregnant, I made a promise to myself that I would start saving from the day that my baby was born to ensure that we had enough money for her education.
However, with a baby comes unpredictable expenses and I continued delaying saving the money, I kept thinking that I have time. The years went by and in spite of my daughter's dream to study chemical engineering, I could not afford to send her to varsity. My husband and I are 60 years old and already are over R300000 in debt.
Straying from my budget
Julia*, a mother in her late 20s from Johannesburg said that although she had a budget in place, she spent more money than what she earned every month and she would continuously tell herself that the next month she will be doubling her savings installment.
This month became more and more difficult and in the end, I was not able to get by without my credit card and overdraft. I ended up being left with thousands of debt and savings to handle it.
Naicker said many of us tend to over-estimate out the potential to exponentially boost our efforts or contributions in the future, to make up for our current financial mistakes or spending habits.
The reality is that this often easily adds bad habits and compromises our future financial selves greatly in the process.
Naicker said " In the last year, 52% of South African metro working households found (at least once) that their income did not cover their living costs. It’s key to create a budget and sticking to it. Peace of mind, together with achieving more of your goals through conscious saving, is the reward!".
Buying unnecessary items to stay on-trend
Thembi*, a young working professional from Soweto, said "I love keeping up with the trends and owning the latest fashions, but my taste for the flashier things in life has caused me to spend big and get into debt to fund my lifestyle. A few months ago I was reflecting on this and realized that the amount of money I’ve spent on nice things could have been used more wisely, like saving up for a deposit on a new home or a dream holiday in Spain!".
Naicker said even if we don't like it admit it many of us still subscribe to keeping a relative image of success. We live beyond our means, however, this could lead to expensive debt that could snowball, making it even more hard to get rid of.
"The situation at present is that working metropolitan South Africans are allocating on average 16% of their monthly income to paying back debt".
Cashing in my retirement savings
Johan* a professional in his mid 40s form Cape Town said early on in my working careers, I changed jobs every few years and each time I moved to a different company, I cashed out my retirement and used it once for a trip abroad another time for a new car instead of reinvesting or keeping the money. Many years later I have settled into a steady job but now I have to save so much more for my retirement because now I have a shorter time to save. If I saved the money when I changed jobs I would be much more prepared for retirement.
Naicker said "Cashing out your savings will set you back more substantially than you realise and could result in you needing to contribute up to double when you reach your late 30s or early 40s, depending on your planned retirement age. A significant advantage of starting to save early is that you benefit from the power of compound interest".
Ignoring good advice
Sipho, a waiter from KwaZulu-Natal said that when he was in his twenties I started putting towards a stokvel monthly. Even though I had been advised to put a more formal savings plan in place. Looking back I think of all the interest and returns I could receive if I considered other ways of saving.
Naicker said "Currently, only 13% of metropolitan working South Africans have a relationship with a financial planner. Many of us haven’t realized the importance of financial planning. As the impact of global and local economic changes and uncertainty are more widely known and felt amongst consumers, the relevance of financial planning is becoming more deeply appreciated. A trusted financial adviser with the appropriate expertise can add significant value, helping you maximise your money to live your best life".
- BUSINESS REPORT ONLINE