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10 Foolish things you can do with your money

By Staff Writer
If you had to think of ten foolish things to do with your money, I’m sure it wouldn’t be difficult to come up with a few ways you could blow your savings.

However, not all of the foolish things that people do with their money are extravagant or extreme, in some instances, mismanaging money is how some people waste their money.
 
However, Karin Muller, head of growth market solutions at Sanlam, pointed out that people are under a lot of financial pressure, and that this contributes to what some people may view as wasteful spending, while others view it as a necessity.
 
Here are a list of some foolish things that people do with their money, which could rather be put into savings or invested.
 
1.       Don’t budget properly.

Muller highlighted that a big problem, and where people lose money is by rounding down rather than up when looking at the cost of items.
 
She gave the example of when an item costs R12.50, and people say it costs about R10. At the end of the day that R2.50 can make a big difference, if you add up all the instances where you do that.
 
2.       Spend too much on your car.

“As South Africans, in most segments, we spend an awful lot of money on our cars. Right at the top end, at the affluent area, it is actually the thing that we spend most money on,” said Muller.
 
One way in which people waste money when buying cars is that they do not always understand how the interest and final balloon payment add to the overall price of the vehicle. Rather try to pay off the vehicle over a shorter time to reduce the cost.
 
For example, Sanlam said that if you purchase a car for the cost price of R172 533 on a 48 month loan at 12% interest, you pay R47 227 in interest and administration fees. The total amount that you end up paying for the car is R219 760.
 
3.       Skip regular maintenance on assets.

Ilse Smuts, head of marketing at FNB Savings & Investments said: “Skipping regular maintenance on assets such as servicing your car, house or other items as per the manufacturer’s instructions can result in you having to pay a much larger amount, for which you might have to access your savings, than what you would have if you serviced it on a regular basis. Remember that you need to save money for these expenses on a monthly basis to avoid having to make use of debt or use savings that you have put aside for another goal.”
 
4.       Live on credit.

Muller noted: “I think the part of wasteful spending that people need to be able to cut out is the credit part, the part that makes it more expensive, because people living from credit to credit to credit and revolving that credit, they are actually paying more for absolutely every single thing that they buy. So if you can get rid of the interest part by only spending what you have then your money will go a lot further.”
 
According to Muller, it is important to manage all credit properly, and to pay off as much of the credit as you can at the end of each month.
 
She stated that if you have a credit card or store card for the purpose of establishing a credit record, do not spend excessively on the card, and pay off the full amount at the end of each month.
 
5.       Mismanage your money.

This is very similar to budgeting properly, however, it includes managing your debt and other expenses, as well as ensuring that you will be financially secure if anything goes wrong.
 
“The only way that you can make sure that you have enough money in the short, medium and long term is if you actually manage it. If you don’t manage it properly and you don’t build the discipline into saving up a bit for emergencies, and you really just live from month to month, then you end up being so dependent on the next salary and your budget can’t manage any shock to the system,” said Muller.
 
6.       Spend/splurge instead of save.

According to research conducted by Student Village South Africa, instant gratification governs many people’s decision making, particularly for students. Attaining this instant gratification is where many people can waste money that they otherwise could have saved or invested.
 
According to the results, sectors that benefit from student spending include food and beverage, technology, phones and electronics, clothing and footwear, alcoholic beverages, and toiletries and cosmetics. These items are consumables, and in the long run don’t have a benefit on your life.
 
7.       Focus too much on the what, and not the meaning.

Smuts noted: “When it comes to buying gifts, we focus more on how people will react to their gifts than the actual meaning. This can cost a lot of money but doesn’t necessarily add proportionate value to the recipient’s life. Saving on these costs can easily bulk up your monthly savings portion and increase the amount of compound interest that you are earning.”
 
8.       Go on an overseas trip.

Unless you have been saving up to go on a trip, it can be considered reckless and foolish to decide on a whim to take money out of your savings to go and see the world.
 
You may get to experience a new country and have new adventures, but in the long term there is no benefit and you end up worse off financially than you were before.
 
However, if you have a separate savings account that has been established with the intention of being used to pay for a trip, it does not affect your long term financial situation, as this money doesn’t factor into that equation.
 
9.       Buy an extravagant property that you can’t afford.

One area where people can be foolish with their spending is buying a property that they cannot really afford.
 
Property is expensive, and it is an investment, however, there are additional costs on top of your monthly mortgage repayments, such as rates and taxes, electricity and municipal charges, which increase along with the cost of the property.
 
Keeping up with the Jones’ is not always a good thing, especially if it means you are going to spend your savings on a deposit for a house that you cannot afford in the long term.
 
10.   Not have a savings account.

Perhaps the most foolish thing that someone can do is to simply not have a savings account. Living from day-to-day may be fine for some people, and even work while you are younger, but as Muller pointed out, it is vital to have a long term financial plan.
 
You need to ensure that you will be able to support yourself, and any dependents, in the event of an accident that leaves you unable to earn an income.
 
Smuts added: “A healthy savings and investments portfolio should include short term products (that can be easily accessed in the case of an emergency such as a burst geyser) as well as longer term products where the funds are not easily accessible. In the latter, you will be saving for a holiday, retirement or your unborn child’s education.
 
“Tapping into longer term savings in particular will result in having fewer funds available for important life milestones which, in the instance of retirement for example, create hardship at a later stage of your life. In addition, accessing longer term savings will result lost interest income and early-access fees.”

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