It is a sad fact of our consumption-focused lives that hidden fees lurk everywhere. Unlike the hazards we encounter in traffic, there are seldom warning signs. From cellphone contracts to car finance, you are probably paying hidden fees that could be avoided. Why not spend a little time identifying and neutralising unnecessary charges, and redirecting that money toward something worthwhile, such as your retirement fund or other long-term savings goals.
Most of us would probably struggle to get much done in a day without our cellphones, computers or the internet but, important as it is, connectivity should not cost the earth.
What to do?
Shop around for the best provider and package for your needs. Be aware of what you use and when. That uncapped any time mobile data contract might sound attractive, but if you are using your office wifi a lot of the time you are probably using only a fraction of what it offers. Choose another package and you could still enjoy carefree downloading and surfing after office hours while saving, maybe, a few hundred rand a month. That money could and should be working hard for you in a long-term savings account.
Have you ever signed up for a subscription to receive ‘free’ ringtones or daily horoscopes? These third-party subscriptions, also known as Wasps, are probably not really free, and could be the reason why you find yourself always having to buy airtime or data. Contact your service provider and ask them how to opt-out. And if you find that apps on your phone are eating your data, check data usage in your device’s settings and restrict background data.
Cars were designed to get us places but, over time, they have also become a symbol of success. Succumbing to peer pressure and buying a fancy car could mean you are paying thousands every month financing a depreciating asset.
When choosing a car people often neglect to consider the additional costs of owning a vehicle: insurance, fuel, tyres, servicing and so on. A car with a monthly premium of R10,000 can end up costing R15,000 per month all-in.
What to do?
Ask the salesperson about balloon payments, extended warranties, insurance costs and delivery charges. Add-ons can cost a lot but some can also be big money savers in the long run. Ask questions, read the fine print and choose carefully.
Consider buying a demo model or a second-hand vehicle. It is well-known that a new car loses value as you drive off the forecourt. According to the Automobile Association (AA), a new car will have lost around 40% of its value by the end of the first year. Why not let someone else take that loss, and buy a car that is a year or two old?
Banking fees can be complicated and confusing, with some charges included in transactions as a set fee or a percentage of the bill, and other fees levied monthly and/or annually. It can be difficult to know what your bank account is costing you.
What to do?
Download three months’ worth of statements (or get printouts from the bank) and go through them line-by-line. Understand what every entry is. Use spreadsheet columns or different coloured highlighters to group essential and non-essential spending, as well as to tally up all bank costs.
If in doubt call your bank’s customer service line and ask for help breaking down the line items. It might be a big wake-up call to see how all the little items add up. Perhaps you could be saving a small fortune every month by withdrawing less frequently, using only certain ATMs or accessing online banking instead of receiving paper statements.
Almost everyone who does this exercise for the first time realizes they have duplicated insurance cover and forgotten subscriptions and memberships they thought they had cancelled.
If there are costs that still look unfamiliar chat to someone at the bank. You could be the victim of a bank error or duplicated charges from a service provider, or even fraud.
When it comes to your retirement fund, fees are the single most reliable predictor of investment performance. According to Morningstar, the respected global financial research firm, “the cheapest funds” are “two to three times more likely to succeed than the priciest funds”.
Despite the significant role played by fees in building up wealth, 10X Investments’ Retirement Reality Report 2020 found that nearly half of South Africans (49%) did not know what fee they were paying on their retirement savings funds, the most significant investment many of them would ever make.
Over a 40-year period, every 1% increase in fees per annum can reduce your final outcome by 30%. (R10,000 earning a nominal 10% pa for 40 years will grow to R453,000, but only to R314,000 at 9% pa.)
What to do?
Ask your financial advisor or a consultant from your fund to break down the fees you are paying. Ask for the EAC (equivalent annual cost), which is the industry standard and will mean that you see a total for all the fees, nothing can be hidden from you. If you are paying more than 1% all-in start researching low-fee products.
As we have illustrated above with retirement saving, small fees make a very big difference over time. When you are ready to scrutinise your monthly bills, become a more informed consumer and neutralise unnecessary hidden fees you might find that you have some extra cash that could be put to work for you.