South Africans miss out on millions

South Africans are losing out on substantial long-term wealth as everyday habits quietly drain thousands, if not millions, of rands that could otherwise be invested for meaningful financial goals.

This is according to Nedbank, which explained that bad habits are sabotaging South Africans’ financial goals, whether that is buying a car or house, building up an emergency fund, or paying off debt.

Bad lifestyle habits can lead to higher life insurance premiums and waste money that could be put towards more productive goals. Bad money habits can erode your finances, making it more difficult to save and achieve your goals.

Nedbank explained that, fortunately, it is possible to cut frivolous spending and save more. A good first step is to start by listing bad habits and what they cost every month.

This can give South Africans a better idea of how much they could be saving, and what larger goals that money can go towards instead.

While every consumer will have different avenues through which they blow their money, Nedbank highlighted seven bad habits that affect many South Africans’ finances.

First, the bank explained that blind loyalty to brands may be costing consumers more than they realise. South Africans may be under the impression that buying an expensive brand means they are getting a higher quality product.

However, in reality, the quality, design or functionality may be on par with, or even worse than, non-branded alternatives.

“You can still buy quality items that are affordable without resorting to luxury brands if you’re prepared to shop around before you buy anything,” the bank said.

Nedbank explained that excessive use of alcohol can also lead to serious problems, such as health-related issues and addiction. It can also be a contributing factor in dangerous crimes.

“Liquor is also expensive, even if you’re a responsible, moderate drinker. If you spend just R50 on ‘a couple of drinks after work’, 5 times a week, it’s costing you R13,000 a year,” the bank said.

“Heavy drinkers could spend 3 times that or more. If you stop drinking completely or reduce your intake, you can devote the money you save to much healthier forms of stress relief.”

Money going up in smoke

Nedbank explained that smoking is another costly habit. A pack of 20 cigarettes costs around R30 to R45, depending on the brand.

“Even if you stick to the cheapest and limit yourself to 10 smokes a day, your habit is costing you almost R5,500 a year. If you prefer an expensive brand and smoke a pack a day, more than R16,000 a year is going up in smoke,” the bank said.

“Those are just the financial costs – smokers’ health risks are well-documented and much scarier. Quitting can save you money and help you stay healthy enough to enjoy those savings.”

The bank added that gambling is another habit which can be detrimental to consumers’ finances in the long run.

Despite the promise of big wins, betting – whether on racing, sports, scratch cards, casino and card games or the lottery – can easily become a bad habit with no positive returns.

“What starts off as a fun, harmless diversion can turn into an unhealthy obsession with serious consequences for you and your loved ones,” the bank said.

“Gambling addiction can cause huge debts, stress that damages your work and home life, and even desperate measures like fraud or theft to pay off the debt. If your gambling is causing you money problems, seek professional help to quit.”

Nedbank warned that bad money habits can harm a person’s financial health just as much as bad lifestyle habits.

“If you don’t draw up a budget to see where your money goes every month, you can’t pinpoint unnecessary expenses and cut costs where needed,” the bank said.

There are many free apps available which can help South Africans create a budget and track their spending. These features are sometimes already available within banking apps.

Nedbank said budgeting carefully is the secret to several healthy money habits, such as paying your fixed expenses on time and making deposits into investments before spending on anything else.

It also allows people to save on interest by not using their overdraft unnecessarily, and checking that their debt levels are not becoming unmanageable.

“Not sticking to a budget can lead to poor choices in all these areas, so break the habit,” the bank said.

Bad money habits

According to Nedbank, withdrawing money from a credit card account at an ATM is another bad money habit. Withdrawals incur a transaction fee, which can be especially steep when using an ATM from another bank.

“In addition, cash withdrawals do not qualify for the usual 55-day interest-free period on credit card purchases, so on top of the ATM fee, you’ll also be charged interest from the moment you withdraw cash,” the bank said.

Consumers will also not be able to benefit from banking rewards they may have otherwise received when spending with their credit cards.

“Even when you’re withdrawing cash with your debit card, it’s cheaper to draw cash at the till point of a participating retailer than an ATM,” the bank said.

Nedbank added that consumers can also save more by checking their bank statements on their banking app instead of paying an additional fee for a printed statement at the branch.

Finally, the bank warned that postponing saving for long-term goals is another bad habit which can cost South Africans dearly in the long term.

“If you’re still young, with more than 40 years to go before you even consider retiring, you may think putting off planning for retirement isn’t going to make much difference,” the bank said.

However, the reality of compound interest operating on long-term investments is that the longer money is invested, the more it grows, and the faster its growth accelerates over time.

“In other words, if you start saving in a retirement portfolio at the age of 35, the amount that has accumulated by the time you reach 65 could be millions of rands less than it would’ve been if you’d started saving at 25,” the bank said.

“The same is true for any long-term investment you’re making towards any other goal – putting off making financial decisions is a bad habit that can cost you a lot of money in the long run.”