Whether one prefers to adopt a glass-half-full mentality, or is regularly accused of rampant pessimism, South Africans cannot reasonably argue against the fact that the country currently languishes in a state of national economic and political fragility.
Consumer confidence has hit a six-year low, SA’s economy has officially entered a recession, and the ranks of the unemployed continue to swell.
In such volatile financial times it is always best to focus on that which can be controlled and, in this context, that happens to be our individual spending and saving habits.
finweek has put together a collection of tips and tricks that should help to – amid disquieting economic volatility – make saving easier and unnecessary spending more difficult.
1. Understand compound interest.
As Albert Einstein once said: “Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn’t, pays it.”
Compound interest takes into account not only the original loan (or savings) amount, but also accumulated interest of previous periods.
(See table from Investopedia below.)
This shows how much money you can save by paying off loans quicker, and how much you can earn by starting to save as soon as possible.
2. Direct any excess cash into your bond or high-interest debt to pay it off quicker and reduce the interest bill.
3. Improve your credit score by paying bills on time, paying more than the minimum required amount, and reducing your overall debt levels.
A better credit score will allow you to benefit from lower interest rates.
TransUnion (www.transunion.co.za) and other credit bureaus allow you to check your credit report for free once a year.
4. Switch bank accounts to take advantage of perks and earn more interest.
Capitec offers the cheapest bank account in SA, according to Solidarity’s Bank Charges Report for 2016, followed by Absa, FNB, Nedbank and then Standard Bank.
Also take into account the different banks’ reward programmes, and choose the best product to suit your needs.
5. If you have been a reliable spender and have stuck to the repayment terms, approach your bank and request to renegotiate rates on existing debt.
6. Take advantage of the tax relief offered by facilities such as tax-free savings accounts and retirement fund contributions. (Also see page 24.)
7. Re-evaluate your medical aid, funeral and insurance policies and premiums to ensure that you are getting the best deal.
Hippo.co.za allows you to compare insurance and other personal finance products from a range of South African brands.
8. Understand your medical cover.
Be aware that medical doctors do not charge the same rate as your medical aid pays, advises Virath Juggai, risk specialist at Gradidge Mahura Investments.
“You would be well-advised to take gap cover if you are on a medical aid that does not cover you at private rates. Get as much information as possible on what your cover is,” he says.
Consult with a well-informed adviser who can take you through a needs analysis and then help you choose the appropriate plan.
9. Ensure that your life and disability cover meet your needs and those of your family.
Consult with a certified financial planner who can do a detailed financial needs analysis that will show you the impact on your savings and dependants if you pass away or suffer some event that renders you unable to earn an income.
Once you are clear on the amount of cover needed, product choice becomes important, Juggai says.
10. Compare the cost and features of financial services products before committing to one.
Independent website Fincheck allows users to compares 36 financial services products currently being offered by accredited financial services providers.
These range from a wide variety of loans, cheque accounts, debit cards, foreign exchange and unit trusts.
11. Think carefully before taking on more debt.
The 50/30/20 rule is an easy budgeting guide to use to ensure you don’t take on debt that you can’t afford.
Based on this rule, you should use 50% of your income for necessities like housing and bills, 30% for financial goals like paying off debt and saving, and spend 20% on wants, like sports and entertainment.
12. Make the most of rand-cost averaging.
When you invest your savings on a regular basis, at monthly intervals for example, you automatically benefit from something called rand-cost averaging.
This is the practice of investing a fixed rand amount on a regular basis in assets that continuously fluctuate in value, such as shares.
By doing this, you effectively remove the risk of trying to decide on the ideal time to invest, as it “averages out” the ups and downs of the market, explains Momentum.
13. Understand investment fees.
There are typically three different fees that you pay, explains Juggai: advice fees for advice, administration fees (sometimes referred to as product fees), and asset management fees.
“Start with good advice, but make sure that your adviser explains the other costs to you in detail. Our clients typically pay between 0.2% and 0.4% for administration, based on how much they’re investing and what products they need.
For asset management our clients pay at most 1% p.a. and 0.8% on average depending on their investment objective,” Juggai says.
14. Mitigate asset management fees by blending active and passive strategies (e.g. by investing in exchange-traded funds), favouring cheaper active managers over more expensive ones, and by limiting exposure to funds with performance-based fee structures.
15. Don’t pay any upfront fees for investments in unit trusts.
16. Don’t assume that if administration fees are high that it will necessarily be the best investment.
17. Don’t be stingy when it comes to getting expert advice.
Good financial, tax, legal and business advice is worth a lot more than it costs, says Juggai.
18. Carefully check your bank statements every month. Fraudsters use fake debit orders to deduct small amounts that are not always easily noticed.
19. Lower the limit on your credit card on a regular basis over a period of time to limit spending temptations.
1. The sooner you start, the sooner you save.
Today’s savings mean extra money to spend tomorrow. Every bit counts. Get started and use the money and income that you have. While R100 may not seem like much now, as you keep adding so your wealth grows.
2. Make saving automatic.
Arrange for a monthly debit order to move money from you current account to your savings account.
The objective of budgeting is to first know where your money is going and what you are spending it on every month. Add up how much money is coming in and how much you are spending every month.
“You have to decide what’s important to you,” says Warren Ingram, wealth manager at Galileo Capital. “What will give you enough motivation to avoid spending money on things you want but don’t really need?
Once you have determined what is important to you, take the time to allocate your spending accordingly. In other words, take control of your money rather than being a victim of circumstances.”
One of the biggest money mistakes people make is not to budget their expenses, and many fail to allocate money first to savings, Ingram says.
4. Budget with a longer-term view.
Budget for the full year, not just a month at a time, says Juggai. “That allows you to plan better and accommodate less frequent incomes or expenses, and also gives you a sense of whether your financial position will improve or deteriorate over the year.
Be honest and critical in your assessment of your spending habits.”
5. Establish an emergency fund for unforeseen events.
“An emergency fund is anywhere between three to six months’ worth of income or household expenses. It needs to be easily accessible and will ideally be invested with low risk,” says James Wiles, financial adviser at PSG Wealth.
“It is just as important to have longer-term savings growing over time, but consider what you would do in an emergency in the short term.
You need to be sure you have access to funds in a crisis.”
6. Be realistic about what you can afford.
If you are just starting out in your career and you're in the market for a car, it is best to be practical and look for a reliable vehicle that is economical and doesn’t cost much to maintain.
The same logic goes for almost every big item, such as purchasing the latest smartphone or your first property.
7. Become familiar with investment assets.
If a money-making opportunity sounds too good to be true, it probably is. Speak to a good financial adviser to assist you with life-stage appropriate advice.
8. Make sure you understand the benefits and financial incentives offered by your company.
You may already benefit from a life insurance or funeral policy as part of your salary package, but ensure you understand exactly what is covered and that you’re not over- or underinsured.
9. Join or start a stokvel with friends or family.
10. Avoid lifestyle creep.
Another money mistake people make is to increase their lifestyle costs at the same rate that their salary increases, says Ingram.
“Rather let your costs rise at half the rate that your income rises,” he says, and save the rest.
11. Re-invest your pension or provident fund when you change jobs.
Most South Africans cash out their pensions, or a portion of it, when they change jobs, thinking they will make up the shortfall later on.
The result is that as many as 94% of South Africans can’t afford to retire comfortably.
12. Don’t be scared of taking on risk.
Sonia du Plessis, financial adviser at Brenthurst Wealth, says one of the biggest mistakes people make is to stick to low-risk investment instruments such as money- market accounts.
“Your funds need some riskier asset class exposure to give you a return that will beat inflation – for example offshore and local equities and listed property.”
1. Follow the 20/4/10 rule when buying a car.
Put down a deposit of at least 20%. Don’t finance the car for more than four years, and spend no more than 10% of your gross income on transportation costs (including petrol, maintenance and insurance).
Some believe you should only buy a car you can afford to pay cash for.
2. Keep a ‘light’ foot on the pedal.
Smooth driving that includes changing gear when the appropriate rev levels are reached and adherence to speed limits will keep fuel consumption to a minimum.
“The more conservatively you drive, the more you can reduce costs,” says Des Fenner, general manager of Datsun South Africa.
Other tips that help keep consumption costs down include minimised idling, minimal use of air conditioning, keeping windows closed while driving to reduce drag, and avoiding unnecessary short journeys.
3. Keep an eye out for fuel specials.
Diesel vehicle owners can save on fuel costs by filling up when diesel ‘specials’ are on offer like those offered at certain Shell garages on a Wednesday and Saturday.
An added benefit is the link-up to the Clicks Club card with points awarded for cash-back on the card.
4. Stick with plans that give you fixed costs, but review them for potential savings.
Review your vehicle insurance policy regularly. Your risk profile and/or the market value of your car could result in lower monthly premiums.
A motoring plan, especially if it is an extended motoring plan for an older car, is often a grudge purchase. But extended warranties, service and maintenance plans afford consumers the certainty of fixed costs as well as protection against potentially costly repairs arising from expensive parts and labour costs outside of these plans.
Extending the motor plan will also enhance your car’s resale value.
5. Optimise the trade-in price of your car.
Today, a used car is holding its value better than it might have done in the past, especially if it is a quality car. “Good quality cars can be kept for longer as they will not present the kind of problems that older generation cars may have done in the past,” says Vic Campher of Tom Campher Motors.
Typically, vehicles lose most of their value – around 25% – in the first year, with the fall in value more measured thereafter.
Generally speaking, the best time to trade in a car is between year three and four, or when the mileage is below 100 000km.
6. Arrange lifts to and from work with co-workers or carpool to events.
uGoMyWay is a local carpooling app that allows users to safely find drivers and passengers who commute to and from the same area to share their journeys and travel costs.
Routine journeys, like home-to-work, are defined and shared within the secure eco-system, which then ranks other users who make similar journeys according to the best match.
The app provides a secure chat platform to establish a dialogue without revealing personal details until trust has been established. User rating and measured ride share activities within the app add to this trust.
7. Prepare for potential fuel price fluctuations by determining how much money you currently spend on petrol, and set aside between 5% and 10% of this value each month as a buffer.
8. Wash your own car rather than paying someone else to do it.
9. If you have an older car that is no longer under warranty, learn how to do some basic vehicle maintenance yourself, using only original SABS-approved parts.
TAKE STOCK OF YOUR SPENDING HABITS…
1. Seek out yard sales in your area when buying goods that can be purchased second-hand, or visit websites such as Gumtree or Junk Mail for used goods and furniture.
2. Sell unused furniture, sports equipment and household goods and save the money you earn.
3. Plan your meals around what’s on special at the grocery store.
4. Eat less meat – at least for now. SA’s Red Meat Producers Organisation expects meat prices to increase by over 30% this year as livestock farmers battle to rebuild their herds after a three-year drought.
5. Buy generic or bottom-shelf items at the grocery store.
6. Cut out the takeaway coffees at work.
7. Take leftovers to work rather than buying lunch every day.
8. Buy plants or herbs as gifts.
9. Buy household staples in bulk.
10. Make a list before going shopping and stick to it.
11. Save on your dry-cleaning bill by steam-cleaning clothes.
12. Buy frozen vegetables.
13. Install a landline for long-distance calls with relatives.
14. Do your clothes shopping during end-of-season sales to maximise savings.
15. Find a happy hour drinking spot close to your work that offers half-price drinks specials.
16. Investigate the corkage policy of restaurants – some allow you to take one bottle of wine per person without charging corkage.
17. Learn to cut your own hair rather than visiting a pricey salon.
18. Downgrade to a cheaper satellite-TV package or rather opt for streaming video services.
19. Join the public library, or swap books with friends and colleagues instead of buying new ones.
20. Enter competitions to stand a chance to win appliances, holidays and services.
21. Set up a separate email address and sign up for newsletters and specials emails to stay abreast of deals on goods bought regularly.
22. Make cellphone calls at times of day when reduced rates apply.
23. Unsubscribe from newsletters that tempt you to buy unnecessary things online at a discount.
24. Pay off any debt on store cards and close your accounts.
25. Buy a geyser blanket to cut down on electricity consumption.
26. Place a bucket in the shower to catch excess water and use it to flush the toilet.
27. Irrigate gardens before sunrise or after sunset, especially in summer.
28. Be vigilant about turning off the lights.
29. Hang washing on the line rather than tumble drying.
30. Replace conventional light bulbs in your home with energy-saving bulbs.
31. Recycle plastic shopping bags and use as garbage bags for smaller dustbins or re-use them when next you shop.
32. Turn off the geyser in the morning before work to save on energy costs.
33. Switch off and unplug items when they are not in use.
34. Place a brick in the cistern of your toilet to reduce the amount of water used during flushing.
35. Plant a vegetable and herb garden and use your very own fresh produce.
36. Whenever possible, save, re-use, reduce and recycle.
37. Look after your health to avoid the expenses associated with healthcare at a later stage in life.
38. Cycle or walk to work, if possible.
39. Upskill yourself by accessing free online courses on websites such as edx.org or Coursera.
40. Opt for lower-cost exercise options, such as jogging, rather than joining the gym.
41. Go Dutch when eating out with friends at restaurants. That way everyone pays their own bill.
42. List your unused bedroom on Airbnb to earn an extra income.
43. Learn to do basic DIY repairs and maintenance around your house, but leave the important jobs to the experts.
44. Cancel magazine or newspaper subscriptions and rather read online articles.
45. Keep an eye out for free events in your city.
46. Pack your own padkos for road trips rather than stopping at a restaurant.
47. Always ask for club joining fees to be waived.
49. Stop trying to keep up with the Joneses.
50. Don’t worship money. It is a means to an end, says Juggai. “True wealth is having options and being able to live the life that you want and that makes you happy.”
FIVE TIPS FROM A STEALTHY BLOGGER
Stealthy Wealth is a personal finance blog (www.stealthywealth.co.za) by an anonymous blogger who is aiming for early retirement and financial independence in 2030 at the age of 45.
1. Categorise your monthly expenses and then list them in descending order.
Attack your biggest expenses first. This is a more efficient way of reducing your monthly costs – because even a 5% saving on your biggest expense can far exceed a 100% saving on something small – like your bank account fee.
So should we be spending hours navigating the spider web of bank account fees, or is that time better spent looking at ways to reduce bigger expenses like housing, cars or groceries?
2. Choose where you live carefully.
There are numerous cost benefits of living close to work – using less petrol, less wear and tear on your vehicle, or even zero car costs if you are within walking distance.
Obviously this is easier to do for a single person – if you have a family, try to stay close to at least one spouse’s work, or strike a balance between the work and school locations.
3. Over-budget and underspend.
This works well for items which fluctuate monthly, such as electricity.
4. Buy a cheap second-hand car and drive it until it doesn’t make sense to.
A cheap car does everything that an expensive car does – which is get you from point A to B.
Stick with a trusted brand and drive it until the cost of repairing and maintenance doesn’t make sense anymore, then get a new cheap ride.
5. Ask for a discount.
The worst that can happen is your request is declined. For bonus points, use the savings from the discount to pay off debt.
6 APPS TO HELP YOU SAVE
The advent of smartphone apps has changed the game in terms of being able to manage and track spending and saving in real time. Here are a few locally available options that are helping consumers battle the debt trap and keep track of money moving out of their wallet:
22seven is a free budgeting and investing app developed by Old Mutual. Users can link their various cheque and savings accounts, credit and store cards, investments, loans and rewards to the app to consolidate their spending.
Once accounts are linked on the app, 22seven has access to the last three months’ transactions from each of them.
It identifies each transaction and automatically puts it into a category such as groceries, rent or pets, and adds up what you spend on each category.
The app also generates a budget for you, based on your own purchasing behaviour.
Who isn’t keen to get money back on their grocery bills? This simple, free app lets you know before you go shopping what items are registered as earning cash-back rewards.
Once the product has been bought, shoppers take a photo of their till slip and upload it to claim savings that can be used at a participating retailer.
PriceCheck is Africa’s largest product and financial services platform that allows you to compare millions of products from thousands of stores.
The in-app barcode scanner lets you instantly access and compare prices, expert reviews, store and location information, to see if you can get an item cheaper elsewhere.
Once you’re ready to buy, click through to the store you’d like to buy from and purchase the product immediately.
The Stocard app allows users to scan several loyalty cards, which are then uploaded automatically onto the interface. The app is then presented at the cash register and all points and discounts relating to the loyalty scheme automatically apply.
This saves customers the hassle of having to carry several loyalty cards at any one time.
5. Factory Shops SA
This app helps you find your nearest factory shops and what they have on offer.
Aimed at directing the user towards cheaper retailers, users search for the type of shop or product they are looking for before being directed to the closest factory store that meets the requirements.
The app allows users to view trading hours, websites, email addresses, phone numbers as well as a GPS location.
Cheapflights is a travel metasearch engine that compares flight prices from airlines and online travel agents. A recent survey by Cheapflights has revealed that the cheapest day of the week to fly is a Wednesday, while the cheapest months to fly abroad are May and November.
This article originally appeared in the 27 July edition of finweek. Buy and download the magazine here.