Crucial Money Lessons You Wish You’d Discovered Sooner
As we mature, many of us receive crucial advice from our parents: work hard in your studies, define your goals clearly, and take care of your health and finances. While this counsel is certainly helpful, exploring some deeper insights into money management can greatly improve our financial prospects.
Not all debt is detrimental. The concept of debt often carries a negative connotation, but not every type of debt is ‘bad’. It’s essential to differentiate between ‘good’ and ‘bad’ debt prior to borrowing. For instance, a student loan can serve as an investment in your future, while high-interest credit card debt might hinder your financial progress. Managing your debts and obligations—like phone and gym memberships—is crucial. Consistently making full and timely payments enhances your credit history, which can be advantageous when applying for a loan for something worthwhile—such as acquiring a vehicle.
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Sales aren’t the problem—impulse purchases are. While discounts and sales can be tempting, it’s important to distinguish between a ‘need’ and a ‘want’ before buying. If you were already planning to purchase something necessary and find it on sale, that’s a win. However, buying an item just because it’s on sale, particularly if you can’t pay for it in cash, may lead to financial difficulties.
Compound interest is your greatest ally. Many people underestimate the strength of compound interest and delay their savings. It’s wise to start saving in an interest-bearing account or investment as early as possible, even if it’s a small amount. For example, saving R500 monthly for two years—totaling R12,000—at a 10% flat interest rate would grow to R13,273. In contrast, saving R100 per month for 10 years (also R12,000 in total) would result in R20,146—highlighting the significant advantages of compound interest.
Your income-generating ability is your most valuable asset. Although assets like your home or car are significant, the reality is you probably wouldn’t be able to own them without an income. Therefore, just as you safeguard your valuable possessions, it’s crucial to insure your income. “Income protection can cover up to 100% of your insured income if you’re unable to work due to illness or injury, ensuring you can meet your financial commitments during challenging times. This should be a priority for all working South Africans.
Traditional funeral cover has its limitations. For many, covering funeral costs and ensuring a dignified farewell for loved ones is of utmost importance. However, funeral cover tends to be eight times more expensive per rand of coverage when compared to underwritten life insurance, providing significantly less coverage. Underwritten life cover offers considerably more protection and allows family inclusion under a single policy from day one, with a premium customized to your individual situation.
Having a salary isn’t sufficient; you need a strategy and a partner. It’s a common misconception that merely having a steady income guarantees financial security. Without a comprehensive financial plan, true stability may be out of reach.
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While traditional advice has its value, working with a qualified financial advisor is the most effective way to set and achieve your financial goals—from your first paycheck through to retirement and beyond.
Melody Cloete is a training specialist at Bidvest Life.
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