You are Here > Home > My Money > Five mistakes that derail your wealth

Five mistakes that derail your wealth

Oct 18, 2021

Five mistakes that derail your wealthThe difference between someone who is financially secure and someone who is not, often has more to do with avoiding wealth destruction than earning a bigger salary or receiving a windfall.

As the saying goes, “a fool and his money are easily parted.” Smart money choices are a great predictor of financial success. If you want to be financially free, you need to avoid the following wealth-destroying behaviours.

Spending your future savings

When you start working it is so easy to maximise your credit and buy everything you want now.

The problem is that you will pay it back and then some. You will spend the next several years paying off things from the past, leaving you with no money to start saving for the dreams you really want to achieve.

The worst debt traps usually involve unmanageable car debt, store cards and credit cards.

Not preparing for emergencies

Emergencies and unexpected expenses are the number one reason people fall into debt.

A big catastrophe like losing your job, crashing your car or getting sick can wipe out your savings.

If you want to protect your wealth, have an emergency fund for those day-to-day unexpected events and take out insurance for those less frequent, but greater financial catastrophes.

Spending too much on that wedding

There are so many things you will want to do as a married couple, like buy a home, travel and start a family.

If you wiped out your savings, or worse, took out debt to pay for the wedding, you will find your dreams of a married life becoming a financial nightmare.

Financial stress is the number one cause of divorce, so don’t let your special day ruin the very thing it is supposed to celebrate.

Cashing in when moving jobs

Every time you change jobs and cash out your retirement savings, you set your retirement date back several years.

If you cash in at the age of 30, you reduce your retirement income by one-third. In order to play catch-up you would either have to increase your retirement contribution by 22% or delay your retirement by five years.

The earlier you start and the longer you leave your money, the less you actually need to save.

Investing too conservatively

There are simply not enough paycheques before retirement to fund your retirement years, so you have to invest in an asset that will grow above the rate of inflation.

If you put 15% of your salary away each month, but simply put it in a jar in the kitchen, inflation would erode those savings to the extent that you would only have two years of your annual salary available at retirement.

If you invested the money in a money market account earning in line with inflation, you would have only 6 times your annual salary.

If, however, you invest 15% of your salary for 40 years in a balanced fund with an average return of 5 percentage points above inflation, you would have 17 times your annual salary on retirement.

This article first appeared in City Press.

1 Comment

  1. Subscribe…


Submit a Comment

Your email address will not be published. Required fields are marked *

Maya Fisher-French author of Money Questions Answered

Previous Articles

The ‘silent’ changes affecting South Africans who are emigrating

The transition from the old emigration regime to the current regime ‒ ceasing of tax residency ‒ came with some relief. However, there were some changes that went largely unnoticed. By Lovemore Ndlovu, SARS and Exchange Control Specialist at Tax Consulting SA, and...

Vote for your GEPF trustees

The Government Employees Pension Fund (GEPF) will be holding its elections for new trustees from January to May 2022. GEPF elections are held every four years and are an opportunity for pensioners and members of the South African National Defence Force (SANDF) and...

Five ways to boost your income and financial knowledge

Angelique Ruzicka shares five ideas for how you can improve your financial knowledge and possibly boost your income. Boosting your income, especially during a pandemic, can feel nigh on impossible, especially when costs are going up and you’ve been told there’s no...

Financial tools to keep you on track in 2022

Advances in technology mean that it’s now so easy to keep track of your finances and achieve savings goals, using smartphone apps, websites, and other online financial tools, says Angelique Ruzicka. If you’re still using Excel or some other rudimentary means to keep...

What will the rand do in 2022?

Ryan Booysen, MD at DG Capital Forex, stares into his crystal ball to predict where the rand will go in 2022. The rand ended 2021 on the back foot, after the Omicron announcement and subsequent global kneejerk reaction of isolation and red-listing the country. And...

SARS gets serious over non-compliance

Jashwin Baijoo, Legal Manager, Africa Tax and Compliance at Tax Consulting SA, warns all non-compliant taxpayers that SARS could be coming for them sooner rather than later. In media statements in recent months, the South African Revenue Service (SARS) has made clear...

Should I use my retirement lump sum to settle my debt?

A question that I often receive is whether it's a good idea to use one's lump sum on retirement to pay off short-term debts, such as car debt or one's credit card. For example, Ntombise recently wrote to me: “I have just retired from work and expect a lump sum...

Reflecting on the year that was

Victoria Reuvers, Managing Director at Morningstar Investment Management South Africa, looks at how financial markets performed in 2021. As a runner, the change in seasons gives me time to reflect. Autumn is my favourite season, and always reminds me that change is...

Immediate access to retirement funds unlikely

Retirement reform paper calls for comment but no move on immediate access. Retirement fund members hoping to access their retirement funds for urgent financial relief will be disappointed by the retirement reform paper issued by National Treasury last month. In the...

The 2022 survival budget

As if the last two years were not tough enough, there is no silver lining awaiting us in 2022. In 2021 we absorbed further fuel-price increases, a 15% hike in electricity costs, and an interest-rate increase of 25 basis points – and this is only the start. It is...

Pin It on Pinterest

Share This