The best way to prevent worrying about
money? Having savings to fall back on. Sounds like we need an attitude
shake-up. And there’s no better time to start than now. First up, some myth
busting:
Myth #1: Saving is difficult
“Behavioural psychologists say it takes 21
days to create a habit, good or bad,” says Peter Dempsey, deputy CEO of the
Association for Savings and Investment SA (ASISA). “And it is just as hard to
break a good habit as it is to break a bad habit. So get into the savings habit
now and it will stick,” he says. Set up a debit order on your account, with a
small amount deducted from your salary each month – you’ll hardly notice it.
Myth #2: I need to earn a lot to save
Not true, says Mothoagae. Those who earn
less but who save regularly will be in a better position to achieve their goals
later in life than those who earn big, but fritter their money away. “There’s a
misperception that you need to save a lot – you can start with putting as
little as R200 a month towards your retirement when you’re in your early
twenties,” says Mothoagae. The power of compound interest will result in
exponential growth in the last five to 10 years before you retire.
Myth #3: If I save, I’ll have to make sacrifices
“Don’t think of saving as a sacrifice; it’s
actually a pleasure deferred,” says Dempsey. Consider this: if you save
consistently now, you’ll be able to buy the house you want or that overseas
trip you dream about. “That’s not sacrificing – that’s planning,” he says.
Source: Old
Mutual Savings Monitor 2011
Brain Drain
Our grey matter can get us in the red…
here, three traps to avoid
1. Credit card anaesthesia
Behavioural finance expert and co-author of
Nudge: Improving Decisions About Health, Wealth And Happiness, Richard Thaler
describes credit cards as “decoupling devices” – they separate the joy of your
purchase from the (greater) pain of the repayment. Our recommendation: feel the
pain by paying with cash. You’ll spend a lot less.
2. Overspending because we’re sad
A study in Psychological Science found that
people who’d watched a sad video were prepared to spend nearly four times more
money on a bottle of water than a control group. The researchers found that the
temporary sadness triggered more “self focus”, leading to overspending. Key
lesson: don’t shop after a bad day.
3. Being fooled by a “bargain”
Sometimes discounts are based on inflated
prices, says equity analyst Busisiwe Nteyi from Kagiso Asset Management. Be
wary of pre-discount prices that are artificially padded – this is when a shop
temporarily increases the marked price of an item, then drops it to the
original price under the guise of a sale. How do you know when a price is
padded? “Pay attention to prices at all times,” says Nteyi. And be a
value-shopper: focus on quality rather than cost, “Price is what you pay; value
is what you get.”
