Eliminate debt – the best thing you can do for your retirement

The life you live today is due to the choices you made yesterday. It therefore stands to reason that your quality of life in the future depends on the choices that you make today.

Because of poor choices, most people are not living the life they desire, particularly when it comes to their personal finance. They say that they don’t have the opportunity to become financially independent. But this is not really true. Recent statistics show that the average South African saves 0.1% of their income and spends a whopping 65% of their income on servicing debt.
South Africans are funding their lifestyles with debt – which is a poor choice.

To understand the true cost of debt, you have to understand the concept of compound interest. Compound interest is the interest being added to the interest on your debt.

The longer you take to pay off debt, the more interest you pay. The interest you pay on your debt is much higher than the interest you earn on any investments or savings.

So it makes sense that, to prepare for your retirement, it is important to get out of debt as soon as possible and start saving. You must be debt-free by the time you retire.

There are a number of ways to reduce debt:

To increase your cash flow, you need to begin by taking stock of where your money is going. Jot down all your expenses, from your bond to the magazines you buy, the cups of coffee you bought and your debit orders. Once this is done, decide where you can cut your costs. Record every rand you spend in a month, so you can see just where your money is going.

Take stock of all your possessions. If you can do without something, sell it and inject the money into your rapid debt reduction plan. Use your bonus to settle your debts.

Draw up a list of your debts, from the smallest to the largest – from the overdue clothing account to the car loan and the bond. Now add them all up and look at the total as one giant account, and not as individual accounts.

Add up all your monthly installments of each and every one of your debts. See this grand total of all your installments as one giant installment that you need to make every month on one giant account.

1	Using the money you have saved by cutting back on expenses, pay off the smallest debt first. Easy!
2	Now use this money towards your installments on your next smallest debt.
3	As one debt is paid off, you need to use the extra money towards paying off the next, and the next, and the next until you have no further debt.

During this process you must pay your other monthly accounts on time or you will have to pay interest.

It goes without saying, that while doing this, you may not acquire new debt!

Your house mortgage –
the biggest debt, the biggest saving

Interest on your home loan is calculated daily on your balance, so extra money parked in your mortgage account saves you paying interest.

The best way to save on your mortgage is to put every spare rand into your mortgage account. To do this you need to cut your daily expenses and put the spare money into your mortgage. You can also use your bonus or any extra money that comes your way.

Reduce all your other debt, avoid using credit cards, retail accounts and loans, and so on. Try to stay debt free.