Wealth building on a salary: five money guzzlers to dump

2014-03-18 00:00

THERE aren’t many honest ways to become instantly wealthy.

If you aren’t the beneficiary of a big inheritance or a Lottery winner, the usual path to financial independence is to start your own business, grow it into a successful venture and earn a good living from it — or sell it for a profit.

But, not all of us are entrepreneurs. And, even if you aspire to running your own operation, you still need some money to get started. So, where do you begin?

Start by cleaning up your finances, so that you can free up some funds to invest in assets that will give your money the chance to grow.

Here are some obvious cash guzzlers that you can dump or, better still, avoid altogether, based on my own experiences.

Endowment policy

These are fantastic products for life assurance companies and financial intermediaries because they generate big fees and commissions.

That, in turn, means there’s much less for your underlying savings pot.

It’s far better to invest elsewhere.

Again, I plead guilty to having signed up for some of these, so I have learnt the hard way about their disadvantages.

Endowments come under many different names, but here are some quick ways to tell if you have one of these or are about to put money into one:

• They are usually offered to you as part of the advice from someone who comes across as very knowledgeable about investing and gives you the impression they will always know more than you about what is best for your money;

• You have to commit to a very long investment period;

• They are usually offered by companies that are household names;

• It doesn’t look like you have to pay any fees today, because these are all taken care of in the investment;

• You can only access your money much later; and

• There’s lots of small print in the documentation.

Funeral cover

I plead guilty to signing up for one of these through a former employer when I first started working, falling for the line that a funeral costs your loved ones a lot of money. In time, I realised that the insurance company was making nice money on its bet that I wouldn’t die any time soon. I have yet to see a funeral policy that is worth the monthly premium.

Admittedly, I haven’t seen them all.

Instead of paying a company money each month towards your future send-off, set the money aside towards your own investment plan.


If you have just started working and don’t have children or other dependents, don’t waste your money on life cover.

Use this money instead to start building your investment portfolio.

Life assurance intermediaries will alert you to the fact that it is allegedly cheaper to pay for life cover if you start buying it when you are young — because you are usually healthier and therefore will be eligible for a lower premium.

But if you don’t need it, don’t get it.

And, if you do need it, avoid buying it wrapped up with an investment product — in other words an endowment — that will pay out after a period.

Keep your life assurance

separate from investments

It should cost you less each month.

I have both: my dependents should receive a vastly greater sum when I die from the one that costs much less each month, and it’s just plain life cover, than the life insurance that is entangled with an investment.

Cellphone contracts and other deals that lock you in

I have released a small fortune from my monthly outgoings by opting for pay-as-you-go and removing other deals for consumer items.

Instead of spending this money on my cellphone each month, I use these hundreds of rands for investing in a low-cost unit trust.

Over time, these small amounts have transformed into an interesting figure. I could quite possibly use this to pay off a property or invest in some other asset


Give up smoking

What kept me going through withdrawal pangs that last for roughly seven minutes but feel like they will never end was the knowledge that I was using the money usually earmarked for B&H on something else.

I must confess, I used the first year of cigarette money to pay for a flight to a ski resort — my treat to myself for quitting — instead of something sensible, like saving. But after that, I set aside the same amount for investing.

Add up how much you spend on cigarettes each year and you will be amazed at the amount of money you can find by removing these from your life.

It really doesn’t take long to build a lump sum once you start pruning your personal finances. — Biznews.com

• Biznews.com was founded and is edited by Alec Hogg. He can be contacted on Twitter — @alechogg and @biznews.com

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