Small change, big difference

The best kind of new year’s resolution is the kind that requires little or no effort but delivers big benefits. Why set yourself up for failure, promising huge changes come January 1, when you could just tweak a few things to transform your finances without killing your lifestyle.

The house always wins

It’s true about gambling. It’s also frequently true about supermarket house brands. From washing powder to fruit juices and T-shirts and socks, the house brands are usually less expensive and just as good as brand-name products.

Kill the credit

Racking up credit should pretty much be a national sport here in sunny SA – that’s how good we are at it. But buying things on credit is the easiest way to steal from your future earnings. Spending money you have yet to earn is bad enough; paying a fortune to your bank or credit card company in fees and interest just adds insult to injury. 

Credit offered by stores is often just as hazardous to your finances. For example, a furniture chain recently advertised a lounge suite for a cash price of R9,999, or R583 over 36 months. R583 a month? Before you say “Bargain!” and sign on the dotted line consider that your instalments will add up to a grand total of R20,988 (for a lounge suite that was advertised for R9,999). 

Using credit makes sense when buying an asset such as a home, or for big-ticket items like cars, but it’s a very expensive route to instant gratification, to be paid out of money you haven’t even earned yet.

The difference between 3 and 5? Around half a million

Let’s say you’re in the market for a new car. You might like the idea of getting the best car that your finances can stretch to. But what’s the rational choice? The numbers speak for themselves. (We’ve used BMW models as an example, with baseline prices quoted by in late 2018.)

Settling for a slightly less expensive car would save you more than a quarter of a million rand. If you had saved this amount of money with 10X (where we’ve achieved an average return of 11.3% over the last decade), your R271,728 would be worth R516,542 after six years.

Quite a sacrifice for a little more presence in the company garage, wouldn’t you say?

Indicative only. Finance costs based on Absa’s financial calculator. Value reflects depreciation of 20% pa of cash retail price over six years.

Better yet, consider buying a demo or a pre-owned car, which would already have absorbed a large proportion of the depreciation. They say a car loses 20% of its value the moment it’s driven out of the showroom – the newer it is, of course, the more valuable this 20% is in cash terms. 

The column to the right of the table shows the effect of this depreciation over six years – suggesting that paying almost R950,000 to end up with something worth not quite R195,000 isn’t the most sensible investment decision one might make.

Black and blue

That’s your bank account we’re talking about. Don’t beat yourself up about not being able to buy the top of the range at all times, the difference is often not worth the price loading.

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