SIMON SHEER
Unfortunately, saving has come to be associated with deprivation. That’s a mistake. Of course, any responsible personal budget means being realistic about our spending habits. But building wealth effectively, is about saving smarter not eating Shoprite baked beans for dinner six days a week (and treating yourself to Woolworths baked beans on Shabbos).
Here are four smarter ways to maximise your money. Over time, these money-saving resolutions can have a profound effect on your wealth.
Investment fees are eating your gains: Management fees and charges don’t seem like a big deal month-on-month. Can an extra two per cent in fees make all that much difference?
The answer lies in the immense power of compound interest. By reinvesting your gains, you effectively earn returns on your returns. Over a long enough time, that exponentially magnifies your investment. The cumulative effect of even apparently small monthly deductions can be a substantially reduced nest egg when you wish to cash in your investment.
Examine the fees and charges connected to your investments. Don’t be afraid to ask hard questions. Don’t be intimidated by technical jargon. Are the fees justified? If not, you may wish to consider investments with lower management fees.
There’s no substitute for time: There’s an even more important corollary to the power of compound returns. There’s nothing like investing over time. If you haven’t started investing, start now. If your children don’t have investments yet, they’re missing out on a chance to really grow their wealth. When it comes to investing, there really is no time like the present.
Your money should work for you. Your bank isn’t doing you a favour taking your money. Our cash is the lifeblood of their business. That’s why banks effectively “pay” us for our money through interest on our savings. You are entitled to a fair deal. Find a bank account that offers higher returns. After all, it costs nothing to earn more from your cash.
We live in a golden age of comparisons: The Internet has made it easier than ever to compare prices. Yet many of us are complacent about financial products. We wouldn’t travel without comparing the price of flights, yet we stick with the same insurance policies for years, perhaps because of the perceived hassle of switching. It only takes a few moments to get a quote and you could save a lot of money.
Bear in mind, however, that although there’s no reason to overpay for insurance anymore, price should not be your only consideration when choosing a policy. Reliability and service are also important.
Be careful also to ensure you make relevant comparisons. A cheaper premium with fewer benefits or a higher excess, may not offer value.
The unifying concept behind these wealth maximising concepts is efficiency. Rather than depriving yourself, the emphasis is on setting your money to work more effectively. Over time, even small gains can produce astonishing results.
Finding better value in financial service seems daunting because finance is complex and there are few incentives for providers to make their products transparent. But by knowing what to look out for, and demanding clarity on fees and returns, it’s possible for any of us to get a fairer deal.
Simon Sheer is co-founder of mytreasury.co.za, the website that finds the best bank account for you and demystifies personal finance.
