Financial Freedom Quick Tip #2: Don’t Save Yourself Bankrupt!
Is it possible to save yourself bankrupt?
At first this question seems quite silly, since everyone knows that it is good to save money. However, many people save in the wrong way! They save using policies and have the monthly contributions for the policies deducted from their overdraft accounts.
At the time of writing this quick tip, the average South African spends 75% of his or her monthly after-tax-income, servicing debt.
If you pay premiums or contributions to a savings plan, on which you only earn interest of say, 9%, but on the other hand you have to pay 19% interest on your bank overdraft account – and you continue with this practice over a period of time – you will eventually save yourself bankrupt!
The solution is to rather use the money you planned to save to pay off your debt. If, for example, you use that money to pay off part of your credit card debt, you can effectively “save” between 17% and 22% on the credit card interest you’ll no longer have to pay.
It’s important to save, but let your main focus be to pay off your debt first!
I got today’s Financial Freedom Quick Tip from Gerrit Viljoen, the guy who taught me most of what I know about money. You can find out more about him and his company on the Ultima Financial Planners website.
July 8th, 2008 at 05:16 pm
We are terrible I guess – we don’t save money; partly because all of our money is spent on health insurance, doctor office co-pays, hospital bills, and prescriptions. We have saved and still try to save, but we always have to use it for something. I was brought up to believe that you can’t take it with you
so I don’t worry so much about it. I also believe that the Lord will provide for my needs so I don’t worry about it in that way either. And yes, I do believe you can save yourself bankrupt. Great post.
July 9th, 2008 at 06:01 pm
excellent! i definitely had this thought when we started. excited about all these tips
July 15th, 2008 at 02:14 pm
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