How to be penny and pound wise
Chains of habit are too light to be felt until they are too heavy to be broken [Warren Buffet]
As we settle into 2023, it is time to be proactive about personal finance. Once you commit to healthy financial habits, the pennies and pounds will take care of themselves.
Chains of habit are too light to be felt until they are too heavy to be broken [Warren Buffet]
As we settle into 2023, it is time to be proactive about personal finance. Once you commit to healthy financial habits, the pennies and pounds will take care of themselves.
1. Ensure your benefits are not in discord with each other
It is crucial that your benefits complement each other and that you’re not paying premiums for a benefit for which you are not eligible. Ensure that any personal benefits are not in conflict with the benefits which you receive from work. Being over insured does not benefit you in any way. The ‘Principle of Indemnity’, which applies to all insurance, does not permit this – you cannot ‘gain or make a profit’ from any insurance, you may only be compensated for any losses incurred.
For example:
If you take out personal income protection for R50 000 a month (the net salary you would normally earn) and the company group for which you work pays you R50 000 a month when you are unable to work, you cannot claim R100 000. This goes against the ‘Principle of Indemnity.’
2. Life policies
Explore ways in which you can decrease your premium by freezing the amount to be paid out after your death. Certain providers offer this option. You may also buy a life policy that lasts a certain number of years. For example, if you buy a house and want to insure your life for two years while you reduce the bond, you can. In this way, the premium decreases over the years but covers you when you might need it most. It is important to discuss your personal needs with your financial advisor to find tailored policies for your needs.
3. Your will
Make sure your will is up-to-date (an annual revision is recommended or when your circumstances change in any way). Apio Wealth offers a value-added service of drafting Wills free of charge.
4. Don’t make knee-jerk decisions when the markets are fluctuating
There are two sayings when it comes to investment which are cast in stone: ‘Ignore the noise’ which means stay committed to long-term plans and ‘don’t try to keep up with the Joneses’. Stay the course you have committed to. Markets are cyclic in nature and you will benefit far more by sitting tight. Your financial advisor will hold your hand through volatile times so that you don’t make irrational decisions or decisions based on fear.
5. Your budget is not a target – don’t spend any excess
If you find that your expenses are ‘under budget’, although the temptation will be to spend the additional cash, instead use these excess funds to settle debt or top up your retirement savings.
6. Understand your cash flow modelling
Cash flow modelling shows you the future value of your money and whether you are on track to achieve your goals. This helps answer questions such as ‘do I have enough money? ‘ and ‘when can I afford to retire’? You need to understand your current position and where you will end up in the future.
7. Interest rates and debt
Be aware of interest rates on credit cards and store accounts. Settle these accounts as soon as possible. Although saving or investing money in the money market makes good financial sense, the interest rate you get at the moment is around 7.5% and the interest is taxed. It would be far more beneficial to put extra funds into your bond account where you are paying at least 9.5% interest. Not only do you gain in terms of tax and the interest rate but you will reduce the total amount of your bond at the end of the term.
Using the Ooba bond calculator and extra bond payment calculator the following scenarios demonstrate the difference any additional funds paid into your bond would make.
Healthy financial habits begin with taking care of the pennies and pounds.
They say ‘a penny saved is a pound earned’ – that’s the basis of healthy financial habits.
Please contact us at 011 799 6400 or info@apio.co.za for any assistance or advice you might need.