14 common mistakes South Africans have made with their money but refuse to own up to
1. Getting into a home loan without knowing the details
I’ll admit it. When I bought my first home, I didn’t understand what I was getting myself into. Only once I signed the papers did I realise that there we expensive lawyers’ fees, estate agent fees and transfer duties that I had to pay.
Many South Africans are so excited to move into their first house, they allow dodgy lawyers, estate agents and bankers to take advantage of their eagerness. That’s why it is important to make sure that you partner with the right people.
2. Ignoring your growing household debt to your detriment
Credit cards, personal loans, student loans, car loans and loans to money lenders – These are just some of the debts South Africans refuse to acknowledge they’ve been involved in.
According to the World Bank, the average South African spends around 23% of their income after tax on housing payments like bonds or rent. Car repayments come to approximately 17% of after-tax income.
Not surprisingly, more than three quarters of the money that comes into a household is immediately spent on debt. The National Credit Regulator recently reported that 10.3 million South Africans can’t meet their monthly debt repayments.
3. Making debt to buy things you should be saving for
If you want to buy a new TV, home entertainment system or even a pair of shoes, don’t make debt to buy it. It’s easy to fall for the in-store credit available. The application process is quick, effortless and easy. Instead, save the money to buy the things you need. Put away a small amount every month until you have enough money in your savings account to buy your goods cash. That is much cheaper than paying the increase cost linked to higher purchase prices and exorbitant interest rates that come with your purchase.
4. Cheating on your spouse with your money
Many South Africans never share the true financial situation with the people they love he most. South African men in particular have the tendency to hide the truth about family finances from their wives.
These households spend lavishly, desperately trying to cater for the needs of the family while neglecting the financial impact of the family. As a result, when the trouble hits the fan, the household is unable to deal with the full impact of the financial troubles.
5. Ignoring the household budget
Every individual and family must have a budget to stick to. This doesn’t only help you understand the extent of your debt to income ratio, it also helps you to steer clear of making unreasonable spending decisions. At some point everyone throws caution to the wind, buying things they don’t need and ignoring the rules and limitations of the budget.
These irrational spending decisions can destroy your financial situation. You can spend years desperately trying to eliminate the debt you made because you failed to stick to the budget.
6. Ignoring opportunities to generate additional income
South African households often ignore the chance to make more money because it will take more time, effort and hard work. Maybe it’s because we’re lazy? Maybe it’s because we have a false sense of financial security. This is a serious problem.
One source of income is simply just not enough to get by on anymore. Financial stability doesn’t come from working one job, earning one salary and investing the pittance you earn. Real financial security comes of increasing the amount of money that flows into your bank accounts, your savings accounts and ultimately your investments.
7. Missing the opportunity to negotiate
We see a price and we pay it - that’s how South Africans like to trade. We think negotiating prices shows financial weakness. We make jokes about people who ask for a special price or a discount. This is a mistake. There are many retailers that are willing to give you a cash discount if you buy products in bulk – All you need to do is ask.
The problem is, we never ask and the retailer makes you pay the full price for the products you buy. Don’t e ashamed to negotiate prices, especially when you’re spending thousands or hundreds of thousands of rands.
8. Blowing your cash on expensive gifts
How many times have you bought things you don’t need for people you don’t like simply because you felt compelled to do it? South Africans are suckers for punishment. You’ve seen them do it. In fact, I’m willing to bet you are one of them. Spending money that you don’t have as you falling to the Christmas spending frenzy, you know you shouldn’t but you do it anyway.
And it’s not only Christmas gifts that damage your wallet. Birthdays, Valentine’s Day, Easter Eggs there’s always some type of holiday or celebration designed to separate you from your money.
9. Buying to impress others shouldn’t impress you
Keeping up with the Jones’s or is it the Kardashians? I don’t remember. But I know you do. One thing South Africans do well is show off, no matter the cost. Look at the spending habits of our politicians in government. Why would we take our financial situation seriously if our leaders don’t?
That’s no excuse. It’s time that we stop caring about what others think about our clothes, our cars or our jewellery. We should stop trying to show off things we don’t have to our friends. I’m not saying don’t buy nice things, I’m saying buy nice things within reason. Don’t make debt for flashy things, in the end this could lead to your financial downfall.
10. Don’t be tempted to be new all the time
When you’re buying a car, you know that it starts losing value the second the polished new wheels hit the road and you drive it out of the dealership. But it’s not just cars that lose value so dramatically other goods also lose value quickly too.
Think about your purchases before you make them. You can find exceptional value in furniture from a second hand shop. Equally, you can pay much less for a second hand car than a new one. This is a common mistake of South Africans.
11. Falling for rewards gimmicks
Buy for R150 and you get a small toy that your kids can play with. Spend R5,000 and you get 5% cash back. These are just some of the promises that retailers make to get you to spend money. It’s a trap. Don’t fall for it. Use these rewards cards to your advantage, read all the terms and conditions with each card. Don’t be tempted to spend just a little extra to make sure you qualify for the toy or the cash back, your finances come first all the time, not some little trinket.
12. Ignoring a financial mentor
It doesn’t matter how good you are at managing your money, you always have something to learn. New financial regulations, tax laws or financial developments could change the way you deal with your money. So make sure that you find a financial advisor that you can trust. Your financial advisor must help you stay ahead of the rules and develop best practices to manage your money in the long-term. Don’t be stubborn and think that you can manage your finances alone.
13. Burning your fingers with SARS
While on the topic of financial advisors, make sure that you have one that is up to speed with the financial rules that SARS imposes on you. Too many South Africans fail to understand the tax consequences that lie with creating wealth, investing and every day income.
If you manage your taxes correctly, openly and honestly, SARS can become a beneficial partner on your journey to creating Real Wealth
. So work closely with your financial advisor, submit your tax returns on time and don’t neglect your responsibilities.
14. Not investing your income as soon as you can
Many of us receive our salaries and immediately spend the money that’s coming in. We never think about investing our money over the long-term. If you’ve made this mistake, you’re not alone. There are millions of South Africans that make this mistake because they need the money coming in to cover day-to-day living expenses.
It doesn’t have to be this way. The best way to start investing your income is to start putting away at least 10% of your salary in a savings account every month. This is a great way to get yourself into the habit of savings and investing. You work hard for that money every month, so you should take a portion of it for yourself. This 10% shouldn’t be seen as a grudge savings but as investment in your future. Before paying your creditors and debtors, pay yourself first.
Now that you know these 14 common mistakes, do you feel better about your financial situation?
Well, I don’t expect you to.
It’s no good simply knowing about it, it’s now time to get yourself out of the financial problems.
The best wealth resources to help you avoid these 14 common financial mistakes
Here at FSPInvest.co.za
, we pride ourselves on giving you all the information you need to make smarter financial decisions. We do this in various ways...
Firstly, we have our free daily e-letter Money Morning
. Every morning, we send you the best financial information related to financial management, investment opportunities and wealth building ideas from our panel of editors and experts.
Then we offer all our readers the opportunity to join one of our premium investment newsletters. Each of these paid services offers you specific benefits to build your knowledge of the financial markets.
First we have Red Hot Penny Shares.
This newsletter is for investors that are looking to make big profits from small companies listed on the JSE. These shares can double in a matter of months and spell immense profits practically overnight.
Then we have The South African Investor
, this 12-page bulletin is packed with the latest market updates, stock tips, investment and wealth protection ideas. Eloquently written and finely detailed, this communiqué gives you the latest news from around the network, tells you the best stocks to buy on the market, and gives clear ‘hold’ or ‘sell’ signals.
Finally, we have Real Wealth.
Joshua Benton and I reveal proven and time-tested approaches to growing wealth. That’s what Real Wealth
is all about. We use our own experiences in investing and wealth building to uncover the most profitable investments available on the markets today.
Of course, we also have a wide range of books and reports on investing, personal finance and wealth building that can help you on your wealth building journey. Visit www.fsp.co.za
to find out more about these valuable products.
Let’s build your wealth together,