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More bang for your bucks

Johannesburg - Consistency is key to ensuring that your money goes further, says Karin Muller, head of Topaz Solutions at Sanlam.

She has these tips:

  • Take advantage of compound interest.

    This is interest earned on interest over time.

    "Compound interest is a powerful reason not to put your money under a mattress or in a low interest account," says Muller.

    Compound interest is inherent in most investments options. Money market funds, equities and bonds pay interest and if left longer (if you do not take out your investment return), you would earn compound interest.

    "The longer you stay invested, the greater you benefit from compounding," she said.

  • Beat inflation.

    Although investing in cash is more secure, the return is linked to interest rates which might not beat the inflation rate. Even though there's more risk attached to equities and property, returns are more likely to exceed inflation over the long term, says Muller.

  • Put more money into your bond

    This will significantly cut down the payment period by a few years and potentially save thousands in money that would have been paid as interest, says Muller.

    This is because most of the money you pay towards your home loan goes towards paying the interest and very little towards actually paying off the debt, she added.

  • Be smart with vehicle finance.

    If you have to finance a vehicle over a longer term to make the monthly increment affordable for you, it means you probably can't actually afford it, says Muller.

    So rather go for a reliable cheap second hand car and whatever you do, avoid having a balloon payment (lump sum payable at end of loan period, as a trade-off for paying lower instalments), she adds.

    The danger of this is that you pay more interest than you would have if you had paid a bigger amount every single month. If possible, try to finance your vehicle over as short a time as possible.

  • Preserve your pension
  • When changing jobs rather preserve your pension than going on a shopping spree.

    "This pot of money can be transferred to a new employer if they have a pension fund, it can be transferred to a preservation fund which is a specific vehicle in which your money will grow with investment returns until your retire or you can put it into a retirement annuity," says Muller.

  • Deal with your debt

    Muller says although it isn't easy, debt has to be addressed. Start by drawing up a realistic monthly budget. You should prioritise your expenses and ensure your income comfortably covers your expenses leaving room for a bit of saving.

    "If not, renegotiate interest rates on properties, ask for more competitive vehicle and home insurance quotes and cut down on unnecessary spending," said Muller.

    Pay expensive debt first. "The higher the interest rate on your debt the more expensive it is." Credit card and store card debts are likely to be the most expensive.

    Live within your means. "If you can't afford to pay cash, you probably can't afford it," said Muller.

    If all else fails, negotiate to pay off debt slower. "Contact your credit providers to work out realistic payment plans as this will help protect your credit record and save you some stress," added Muller.

- Fin24.com

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