Many people make financial decisions they believe are helping them save, but are doing the exact opposite. Fin24 spoke to Sam Beckbessinger, author of 'How to manage your money like a f***ing grownup', about the biggest mistakes you could be making.
Few South Africans understand how to best use insurance, Beckbessinger says. Don't insure every little thing, she advises. Rather focus on insuring "the things that could bankrupt you" if you lost them – like your home, or your ability to earn a living. Many people are under-insured for disability or illness, but worry overmuch about the small things. "Breaking your cellphone is not the end of the world," she says. "Rather put that money into savings and worry about what you'd do if you couldn't work."
2. Not being afraid enough of debt
"Debt traps you in the past," Beckbessinger says. Her book, How to manage your money like a f***ing grownup, focuses on the mental blocks holding people back from financial success. Debt is one of these – and according to a 2014/15 World Bank Report, South Africans are the world's biggest borrowers. More than half of South Africans are three months or more behind in their debt repayments. If you are in debt, focus all your energy on getting out, says Beckbessinger.
3. Not understanding inflation
"Inflation is the enemy of savings," she explains. If your investment is not growing at a rate that beats inflation, over time, that money is worth less and less.
4. Thinking 'this is future me's problem'
Time really does matter, says Beckbessinger. There will always be a reason to put off managing your money – but the earlier you start, the more money in your pocket. Someone who saves R1 000 a month starting at age 25 can end up R1m richer than someone who starts at 30, she says – and thanks to compound interest, starting to save for your retirement in your 20s can make a lifetime's difference.
5. Having savings and debts at the same time
Money is fungible, Beckbessinger explains, which in plain English means a rand is a rand. But because humans have feelings, we attach meanings to different types of money. "So we like to keep money in savings accounts because it makes us feel good, and we don't use our savings to pay our debts because that makes us feel bad," she says. However, if for instance you have invested in a fixed deposit account at a 6.6% interest rate, but your credit card debt is charged at 20%, you are losing money.
6. Not knowing who to ask for help
Get good advice from an objective advisor, she says, and don't be afraid to pay for it. "Don't get your advice from someone who is selling you something. If the advice is free, you'll pay in another way."
7. Relying too heavily on property investment
There's nothing wrong with buying property, but it's not the only way to invest and it's not necessarily right for everyone. "You don't have to put all your eggs in one basket," she says. If you don't have the means for a diverse investment portfolio that includes property, you can buy shares online quickly and easily (she uses www.easyequities.co.za) and start investing for less than the price of dinner and a movie.
Beckbessinger has four failsafe rules for managing her own finances:
1. 'Deal with the feels'
Be honest with yourself. Money is an emotional subject, so deal with anything that's holding you back.
2. Pay yourself first
Use stop orders to deal with savings and debt repayments before you do anything else. Don't expect to have willpower for budgeting at the end of the month. "That's unrealistic," she says. "We're just primates with pants on!"
3. Have one clear goal at any time
This helps you maintain focus. Are you saving for a car? A trip? Your studies? A home? Always have a financial goal.
4. Open a second account
Beckbessinger has two accounts: one for bills and one for fun. That way, she never overspends.
'Manage your money like a f***ing grownup' is published by Jonathan Ball.
* July was National Savings Month. It doesn't stop there. Do you have a successful savings plan or story to tell? Share it with us now and help others to also become Savings Heroes. For more on savings, visit our special Savings Issue.
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