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Every time I move house I am reminded of how much money I, and the rest of my family, waste on unnecessary things, ranging from books that are read once and could probably have been better sourced in the library to clothes that are hardly ever worn. Johannesburg money expert Dawn Ridler highlights this kind of poor personal financial behaviour as a key obstacle to growing wealth. She shares a host of amazing tips to cut down on wealth-decimating bad habits, as well as how to free up funds elsewhere in your regular spending. Don’t waste money on life insurance, she says, unless you have dependents. Rethink your armed response contract and other monthly expenses that you probably don’t think you can eliminate. Great ideas, some of which I’m going to employ immediately, starting with her suggestions for my wardrobe. – Jackie Cameron
Stuff and nonsense
By Dawn Ridler*
Wealth has very little to do with earnings, it has everything to do with consistently spending less than you earn. You might have heard of ‘lifestyle creep’ this is the gradual expansion in your standard of living to match your increased income. Bigger houses, better cars, private schools, more exotic holidays, better clothes etc. This is a very human response – there has to be some reward for slaving away at a job, right? Changing how you ‘consume’ is not easy. You have built up those spending behaviours and habits over years, if not decades. It’d be nice if we could blame it all on nurture – the way our parents brought us up, but it just isn’t that simple.
Walk into your closet, open your kitchen drawers, go into your sewing room or man cave. All the stuff you see around you used to be money. Perhaps you need to flick through your Facebook pics if you spend your money not on stuff, but on ‘memories’ (travel, experiences, holidays).
Controlling and understanding your consumption is the key to wealth – but how can we do that without sucking the joy out of life?
Where can you liberate some bucks?
Focus first on grudge purchases – insurance and the stuff one might reasonably expect your taxes to pay for – armed response, medical aid, schooling.
Medical aid: We are in the medical aid plan conversion season, are you on the right plan? Do you feel that you need to get ‘your money’s worth’ from the medical aid and use it more than is necessary? Do you really need to cover ‘day-to-day’ expenses? (There is no judgement here, if you have kids, or chronic conditions then of course, you have greater needs).
Armed response: Anyone who knows me knows that these companies are my pet hate (having been very badly let down the one time I really needed them during a home invasion). Obviously, your primary concern should be your welfare and not your ‘stuff’. Insure your stuff, put physical deterrents in place and get a good panic button (With an App and panic button like Namola, this can cost a fraction of your existing premium). CCTV has become very inexpensive, wireless and interactive.
Short-term insurance: Build up an ‘excess’ savings fund and take a voluntary excess to lower your premiums. Is it necessary to insure all your ‘stuff’ – most of which will have no value to anyone else? Most insurance companies have an all-or-none for household contents but you can cover specific expensive items that you may carry on you from time to time. A higher voluntary excess works well at bringing down premium in cars. (A certain insurance company helps you put that ‘excess saver’ account in place.)
Life insurance: This should only be in place if you have the ‘risk’ – not necessarily for life. If you have liabilities – millennials that won’t leave home, a dead-beat spouse, bonds, overdrafts or loans — then you have to suck it up and do the grownup thing should you prematurely shuffle your mortal coil.
If you really ‘need’ to leave a legacy, does it really need to be money? You can really bring your premium down by taking out the insurance for as long as you need it (called termed insurance). Replacing your income if you can’t work temporarily or permanently is also smart (and often provided by companies) – but again only as long as you really need it. If you’re 5 – 10 years out from retirement and could retire if you couldn’t work, then don’t waste your money.
Dread disease cover is increasingly important – as medical aids cover less (let alone the prospect of the hair-brained NHI coming into effect). Not all providers are created equal, cover described as ‘dread disease’ can range from a 100% at an early stage (and then reinstating for a different condition) to “Ag shame man, here’s 10%, come back when you’re dying”. “Life” insurance is highly complicated and full of potential tripwires.
Benefits are ‘upgraded’ all the time, so unpleasant as medical tests might be, you do need to keep reviewing and upgrading your cover (until you can’t because the warning light has come on in various locations of your ageing body and the insurers don’t want you).
Save consistently for retirement
The government gives you huge incentives to save for retirement, it’s a no-brainer to take advantage of them. If you work for a company and leave, do the grown-up thing and ‘preserve’ it. If you cash it out, you’re going to be taxed heavily and you’ll never get that time or money back. If you don’t have a company pension fund, start your own retirement annuity but please not with one of the insurance companies. I don’t care if those companies don’t like this warning, but until the ‘early termination penalties’ are removed completely and retrospectively, I am going to continue to say it. Use a “LISP” platform, preferably one not associated with an insurer.
Big wealth holes: The two decisions that can have a devastating effect on your wealth are switching properties and cars often. Cars can easily last 10 years if properly maintained and chosen wisely your first home can be your last home. Warren Buffett has done precisely this. Building ‘memories’ can also be very expensive – especially if you have champagne taste.
Luxuries: I am not going to be a Mother Grundy and suggest you suck all the joy out of your life, but pick your poison, not indulge in the entire pharmacopeia. We are all very different and you’re the only one who is going to be able to fess-up to wanton expenditure. Unlike the once off premiums or lump sums that we looked at earlier, these are decisions or temptations you’re going to face every day.
You could put your own ‘rules’ in place. You could cap your expenditure, and take this out as cash, for example. In the spirit of walking the walk and not just talking the talk I confess have a couple of weak spots. Buying material is one – the rule – no more new material until something has been made. I love clothes and shoes – the rule – in January every year every article of clothes is placed backwards on the hanger or in the drawer and in Jan the next year, anything that is still ‘backward’ is given away. Nothing new is bought until something else is given away (not January) / sold / broken.
Action: Just like bad habits are formed one day at a time and one decision at a time – so can you build your wealth.
- Johannesburg intermediary Dawn Ridler, MBA, BSc and CFP ® is founder of Kerenga.
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