Five spending cuts that will boost your savings
1. Credit crunch Financial planner Rodney Bukuya’s No.1 rule is: do not borrow for anything that will not make you money. That means no credit cards – Bukuya uses a debit card and spurns personal loans, except on property that he does not occupy. Let a tenant pay off the debt. Claim the mortgage interest as a tax deduction, he suggests.
2. Designer rort Bukuya’s second bugbear is labels: brand-emblazoned clothing. He refuses to pay for the privilege of doing a company’s marketing, he says. Paying $180 for a designer shirt because it carries a preferred label borders on insanity, he adds.
3. Holiday fling Holiday homes are another suspect purchase, says wealth coach Michael Miller. After buying one while away at an exciting new destination with nice weather, you may find that its charm fades fast. Soon, you long to travel elsewhere, but you are stuck. If the property was bought with a $400,000 loan, say, that will cost $23,000 a year at 5.75 per cent interest. Maintenance costs help make it a money pit.
4. Car crash Buying a new car every few years is also folly, says consumer finance expert Kirsty Lamont. ‘‘New cars suck your wealth quicker than an industrial vacuum cleaner, depreciating faster than almost any other asset,’’ Lamont says. When you drive it out of the showroom, up to 30 per cent of its value vanishes — another chunk vapourises in two or three years, she adds.
5. Tech trap Financial planner David Rae says beware of becoming over-connected. Assess whether you need cable TV, an internet connection, mobile plan and an iPad plan. Other iffy outgoings identified by financial advisers include cafe coffees, which add up to more than the cost of an espresso machine.
Frequently Asked Questions about this Article…
The article’s top rule is: don’t borrow for anything that won’t make you money. That means avoiding consumer credit like credit cards and personal loans for everyday purchases. Use a debit card instead and reserve borrowing for income-producing assets only.
Financial planner Rodney Bukuya advises spurning personal loans except for investment property you don’t occupy. He suggests letting a tenant help pay down the loan and, where applicable, claiming mortgage interest as a tax deduction for that investment property.
Paying extra for labels is essentially funding a company’s marketing. The article points out that paying, for example, $180 for a designer shirt just for its logo is an unnecessary expense — skip the label premium and buy quality without the marketing markup.
Wealth coach Michael Miller warns holiday homes often become money pits. Their appeal can fade quickly, and financing one can be costly — the article gives an example of a $400,000 loan costing about $23,000 a year at 5.75% interest — plus ongoing maintenance adds extra expense.
Consumer finance expert Kirsty Lamont says new cars depreciate very fast. You can lose up to 30% of the car’s value as soon as you drive it off the lot, with further significant drops in the next two to three years — so frequently replacing new cars can quickly erode wealth.
Financial planner David Rae recommends assessing whether you really need every service: cable TV, multiple internet or mobile plans, and an iPad plan. Cutting redundant subscriptions and avoiding 'over-connection' can lower bills substantially.
Yes. The article notes that routine cafe coffees add up and can exceed the cost of buying items like an espresso machine. Small recurring purchases can erode savings over time, so consider brewing at home more often.
The article recommends cutting: 1) consumer borrowing and credit-card use, 2) spending on designer-label clothing, 3) purchases of holiday homes that become money pits, 4) frequent buying of new cars due to steep depreciation, and 5) unnecessary tech subscriptions and daily small purchases like cafe coffees.
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