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By Sonia du Plessis*
Over the past two decades, whether the financial crisis of 2007/08 or the more recent economic Covid-19 economic shock, people tend to make the same money mistakes no matter what the event or circumstance.
The lessons to be learnt from such financial failures have also not changed much over the years. So, whether you are starting out in a job or strongly headed for retirement, you still may make the same less-than-stellar decisions regarding your finances.
It is important to keep in mind that the choices you make today and the habitable solutions you form now can affect the rest of your financial life, no matter where in life you or your descendants find yourselves.
Failure is simply feedback informing us that there is a different or better way.
Mistake #1 Not saving enough for retirement
Society faces a massive problem with many people not having enough money to support them in old age. Apart from not having enough saved, many people are unrealistic about their expected lifespan. Numbers show people all over the world are living longer, meaning more money will be needed for retirement.
One of the best ways to bridge this gap is to start saving at a young age, from first paycheck is ideal, and it is also an invaluable lesson to teach children.
Children can be taught the habit of saving by putting away a small portion of pocket money, or money earned from small tasks like walking the neighbour’s dog for a fee, every month when still at school and continue the momentum from the day money is earned when employed.
Postponing savings until later will require much greater amounts to be put away later to be able to build-up any meaningful nest egg.
Mistake#2 Cashing in retirement savings
This is probably the worst financial decision to make in a lifetime – cashing in retirement savings, when changing jobs. The decision to pay down debts like a home or car loan with retirements savings will prove detrimental. When changing jobs, pension money should be transferred straight to a preservation fund, retirement annuity or a new employer’s pension fund.
Also, do not just focus on savings and investments, also try to understand the production of income and the supplementary options available in terms of risk cover and estate planning.
Mistake #3. Not getting advice
Being an expert or specialist is not a requirement, but it is important to understand the basic financial terms and the goals you are trying to achieve by applying them. Enlisting an experienced and qualified financial planner will make the process a lot more seamless. But do not just leave your own individual decisions and future wellbeing to an advisor or your spouse for example. Be part of the process and understand the risks and benefits involved.
It will come in handy to pinpoint scamsters and ensure the products and services you buy into has been authorised by necessary authorities and protect saving scheme from falling apart in the future.
Mistake #4 Ignoring risk issues
Risk cover comes in all forms and phases. That means having sufficient life, disability, and serious-illness insurance in place. It can turn out to be disastrous for your savings if you do not. Always plan, for the inevitable or unforeseen. Especially if you have debt obligations and/or dependents relying on your income and support.
Mistake #5 Not having a will or not updating it
Without a Will, you will die intestate, which will complicate matters, and your final wishes cannot be adhered to, and your beneficiaries left in the lurch. Having a Will that is up to date will reduce the administrative burden to finalise your estate at your death and make sure your loved ones are taken care of in the way you want them to. Not updating a will when personal circumstances change can cause unforeseen trouble for heirs in cases of, for instance, a divorce, or when a business partnership agreement changes.
Mistake #6 Focusing on paying off debt and not saving or investing
Reducing or paying off debt is always a good goal for a sound financial plan. But saving should not be ignored. Even small amounts saved can make a big difference over time. The key is to set a budget and stick to it. Focus on the debt but cut out luxuries to start or increase savings.
Mistake #7 De- risking in tough economic times.
This is very true in the current Covid-19 crisis. Markets work in cycles and will recover and pick up again. To get inflation beating returns exposure to riskier assets, like equities, must be part of any financial plan.
When markets experience volatility, investors can be easily tempted to de-risk. But you must stay invested. You might have to tweak here and there on the type of equities, but if you had equity exposure before the Covid-19 market turbulence, keep it.
Mistake #8 Scams & Cybercrime.
There are and will always be scams going around. Check and double check, where you invest your money. You would think currently that we are over scams but there are still plenty going around
Cybercrime is increasing at a rapid rate. Fraudsters can easily hack into personal emails. Guard your cell phone like a hawk – criminals know that most individuals have banking Apps on phones or tablets. More than 90% of the time they are after your device to get to your online banking passwords, not the actual device. We easily get annoyed with financial institutions doing two-step or multiple checks, but it is so worth it. Importantly talk to older people in your family who use internet banking or any financial services Apps – criminals especially target the older generation more.
Read more about financial planning here: Investing
- Sonia du Plessis is head of the Brenthurst Wealth Stellenbosch office. She is a Certified Financial Planner® and won the inaugural title of Top Financial Advisor in SA at the 2019 Intellidex Top Private Banks and Wealth Manager awards. Before joining Brenthurst she worked at ABSA Private Bank and Magnus Heystek International. She holds a B.Com degree from the University of the Free State.