The best 100 money tips ever! 41- 60

This is the third part of five posts on The best 100 money tips ever.
Click below to read the other posts.
1- 20
21 - 40
41 - 60
61 - 80
81 - 100

41. Start planning your retirement at least three to five years before the date on which you are due to retire, so that you understand all your options and are not rushed into any last-minute decisions.

42. Be careful when buying an annuity (pension) with (at least) two-thirds of your retirement fund savings, as you are required to do by law. Living annuities have been widely mis-sold because of their potential to earn higher profits for the companies selling them and higher commissions for advisers. With a living annuity, you take the investment risks; with a traditional guaranteed annuity, you don’t, the life assurer does.

43. If you are investing in a living annuity to buy a pension and you need to draw more than the minimum five percent of the annual value, you could be exposing yourself to the risk of not having sufficient money to provide you with a financially secure income until you die.

44. Most living annuity providers allow you to draw your pension from different parts of the underlying investments. This enables you to structure the annuity so you have an income-generating portion and a capital growth portion. You should use this facility to invest mainly in interest-generating investments for the income portion. This will significantly reduce the risk of undermining your capital.

45. If you use a living annuity to buy a pension, do not invest all the money in equities or equity unit trusts. At the absolute maximum, you should have no more than 75 percent invested in equities. The balance should be in more stable interest-earning investments.

46. Always pay the full amount owing on your credit card. If you do not, you will be charged a punishing rate of interest from the date of purchase. The so-called budget account on your credit card is a misnomer, as you pay a high rate of interest.

47. Use a credit card to get 55 days’ interest-free credit by buying at the start of the buy-and-pay cycle and repaying the debt in full by the due date. This option does not apply to cash withdrawals and petrol purchases, on which you pay punitive interest rates from the date of the transaction.

48. Don’t leave large amounts of money sitting in a low-interest bank savings or current account. Rather put the money into a money market account or into your mortgage bond.

49. Pay yourself first. Set up debit orders that channel money into investments as soon after pay day as possible so that you will not “miss” the money.

50. Never use debt on which you have to pay interest to buy products you consume. You are in effect making the items far more expensive, and will be able to save less and buy less in the long term.

51. Borrowing to buy reasonably priced property is a good thing because you can expect the property to improve in value.

52. You should not, as a rule, borrow to invest, particularly not in volatile markets, such as share markets. The exception is property that you intend to hold for at least five years and in which you live.

53. Keep a good credit record. It could save you thousands of rands, particularly when you want to borrow money for big-ticket items such as a home or a vehicle, because the better your credit record, the lower the interest rate you can expect to pay.

54. The best investment you can make is to repay debt. Interest rates in Africa are high. By paying off debt, you get one of the best returns available, tax-free.

55. Borrow wisely. Expensive debt is a quick way to lose money. For example, borrowing against a credit card is far more expensive than borrowing against a home loan. The difference can be more than 10 percentage points.

56. If you have a problem meeting your debts, don’t try to hide away. Go and speak to your creditors, particularly your bank, to find a way out of your problem. Don’t use debt consolidators/administrators. They will charge you far more interest and make your problem worse.

57. Beware of plastic. Store cards and credit cards may be convenient, but they are also an easy way of running up debt.

58. Don’t fly now, pay later. It is very depressing to be still paying for a holiday (or any other luxury) five years later, when you want another.

59. If you take out life assurance or short-term insurance to cover debt or an asset financed with debt, always pay the premiums as they become due to avoid paying interest on the premiums as well.

60. Try to repay more on your home loan than the minimum. For example, on a home loan of R 100 000 at a mortgage bond rate of 15 percent over 20 years, your normal repayments will be R1 316.79. Increase the repayments by R100 and you will reduce your repayment period to 14 years and five months, and you will save R88 224.93 in interest repayments.

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