Five best (and worst) ways to spend your money

Careful financial management can be your ticket to a stress-free life.

The trick is to know what to invest your money in and what not to waste it on.

This according to Efficient Advice Founder and Financial Planning Institute of Southern Africa’s Financial Planner of the Year, Peter Hewett.

He spoke at a media briefing of the Thebe Reed Exhibitions, Bryanston, on 15 October (see previous article).

According to Hewett, the five best investments you can make are:

• An emergency fund: Aim to keep some savings equivalent to two or three months of income. Life happens and unexpected costs will emerge, and interest rates on loans and credit facilities can be very high.

• Invest for your retirement: Begin as early as possible with a company pension or provident fund, and contribute the maximum you are permitted and can afford.

• Insurance/assurance: Risk insurance is a necessary investment and a good one to make in your early years, offering returns that could take 20 to 25 years to achieve through a similar investment.

• Build up discretionary funds: With a mix of discretionary and compulsory funds, you can structure your income to have a capital and income component. Thus, in your early years of retirement you can limit your tax liability, and when you grow older and access more compulsory funds, you can benefit from age-based tax concessions.

• Equity and property: These generally outperform cash and bonds over time, but it is important to have a qualified and accredited adviser manage your asset allocation.

The five worst ways to spend your money:

• Retail credit: Overdrafts, clothing accounts and credit cards are very expensive forms of credit and people tend to use them to live beyond their means, increasing their financial difficulties.

• Luxury vehicles: Expensive vehicles tie people to high long-term payments. Insurance on these vehicles is also high, and their value depreciates.

• Get rich-quick schemes: Any group offering returns far in excess of what is available through large listed financial institutions is likely to be risky or even questionable.

• Keeping up with the Joneses: It is important to be disciplined about saving and live within your means.

• Pension fund withdrawals: There are long-term implications to doing this. It is better to transfer funds to a preservation scheme or a new retirement scheme.

Details: Thebe Reed Exhibitions 011 549 8300, Efficient Group 012 460 9580.