Often, we forget about “hidden costs” that accumulate and eat away at our money. Which everyday hidden costs do we need to watch out for — and how can we prepare for their effect? Financial coach Linda Smith shared these tips with me.
- High-interest charges. We know that there is heavy interest on our credit cards and store cards. Settling these amounts first, and on time, saves a heck of a lot of money over time. If you owe R1 000 on your credit card at a rate of 20% per year, you’re losing R200 a year, with nothing to show for it. If you owe R20 000, that’s R4 000.
- Debt repayment. This is a biggie as every debt we have must be paid off, and we often pay only the minimum each month. Say you owe R20 000 on your credit card, and you have to pay R500 each month, as a minimum. Calculate the difference between paying off the interest on that R20 000, paying the bare minimum, or paying even 10% more on top of that. Frightening, isn’t it?
- Bank charges. Keep an eye on your bank charges and query those that seem excessively high. And remember to choose a banking package that suits your needs. Shop around. Ask questions. Negotiate. “These days, people are paying more per month to keep a bank account than I earned during my first year of work in 1983 — R400 a month,” says Smith. “Let’s look ahead another 25 years – can we expect to pay today’s entry-level salary just to run a personal bank account?”
- Late payments. Watch out for late payment fees and over-limit fees — these are avoidable.
- Cellphone charges. Pay careful attention to peak times and off-peak times; make sure your calls don’t go over your call-minute allowance. Per-second billing is another way to reduce the cost of your cellphone usage. Why pay for a full minute when you have used less than half?
- The debt spiral.Once you’re in debt, it seems difficult to get out without incurring even more debt. But using your credit card to pay off everyday expenses is a big no-no. More careful financial planning can get you out of the debt trap. Bear in mind, though, that just one setback can have a snowball effect. The secret is to create an emergency fund as a buffer against costs we can’t — or even can — anticipate. So, even if you’re swimming in debt, put aside a little money towards that emergency fund and add to it each month. That way, you’ve thrown yourself a lifeline and even though you’re still swimming, at least you can see the shore.
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