Top 10 Money Tips

..::Top 10 Money Tips::..

Take these tips to heart and you’ll have a solid foundation for future financial well-being.

1. Save 10 cents from every R1 you earn. If you put away at least 10 percent of your income as part of a long-term savings plan, there is a good chance that you will have a financially secure future and be able to attain your financial goals.

2. Put 10 percent of every pay increase towards savings, particularly long-term savings such as a retirement plan. If you are employed and belong to a retirement fund, your contributions will increase automatically in proportion to your pay rises. This will help ensure that you stay well ahead of inflation.

3. Use the “Can I sleep?” judgment when making investments. An investment is too risky if you are going to lie awake at night worrying about it.

4. Diversify your investments. Never invest more than five percent of your assets in a narrow investment (for example, a specialist unit trust fund such as an emerging company one) or in an unregulated investment. Diversifying your investments will ensure you don’t lose everything if one investment bombs out. Many people who invested all their assets in major scams such as Masterbond lost everything, and the same thing can happen in the regulated market if you put all your money into one sector ... just consider how the information technology bubble burst in 2000.

5. Be extremely cautious if the returns promised on an investment exceed what is generally available. If they sound too good to be true, they probably are. It usually means the investment is too ambitious in its claims, too risky, or simply a scam.

6. Know the difference between effective and nominal interest rates. Normally, banks will quote you a nominal interest rate when lending you money, but a higher, effective interest rate when you invest money. The nominal interest rate is the simple rate. The effective rate is calculated by compounding the interest earned or charged.

7. Check whether the interest you are being paid is credited monthly, quarterly or annually. Say you invest R10 000 for 10 years. If you receive interest at 10 percent credited annually, you will get a total return of R25 937. If it is credited monthly, you will receive R27 070.

8. How do you decide whether you should invest directly in shares? Simple. If you haven’t got the time to learn about stock markets, to follow the progress of companies or to track your portfolio, rather invest in unit trust funds and/or life assurance endowment policies that have shares as their underlying investments.

9. If you do invest directly in shares, your two most important considerations should be ensuring that you have a properly diversified selection of shares across the stock market sectors to reduce risk, and regularly rebalancing your portfolio. When a share rises in price, you should consider selling some, but not all, of these shares, so that you make a profit, but your overall portfolio remains proportionally the same as it was when you started. By doing this, you’ll be able to reap further profits if the share price continues to rise.

10. If an investment product is too complicated to understand, avoid it. It does not mean you are stupid. It simply means that the product provider and/or financial adviser are trying to baffle you.