Get rid of those toxic investments
OPINION: There are some financial products you should live without.
All are a drain on your finances, and some are downright toxic to your long-term wealth.
There’s been an explosion in dubious and poor value financial services, especially loans and insurance.
If you have any of these financial products it is evidence you need to take a long, hard look at your money life, and consider doing things differently. OVERDRAFT An overdraft is fine for small businesses, but for ordinary people, it is something you should grow out of using quickly after joining the workforce. Money spent maintaining an overdraft is better saved, to make you richer. If you lurch into overdraft month after month, start budgeting. CREDIT CARD COVER People who carry debt on credit cards worry how they would repay it if they were made redundant, injured, died or fell sick. So they pay the bank for loan insurance. Credit card debt is to be avoided. It makes banks richer, not you.
I’m not a fan. I know funerals cost a lot, and many people do not want to leave a bill for family members. The best thing to do is to save a lump sum. If you have a decent emergency account to enable you to cope if you lost your job, you have enough for your own burial. Just make sure there’s a will so your family can get the money, if you drop dead.
These are short term loans with extraordinarily high interest rates. In our unequal society some people struggle to get from payday to payday, but high interest loans only make things worse.
If you think of it as a replacement for buying lottery tickets, it’s not the end of the world. It gives you a chance of winning a million, without spending a fortune in weekly instalments. But as an investment, Bonus Bonds suck. The only sensible amount of Bonus Bonds to have is not many. ‘‘BASICS’’ HEALTH INSURANCE These are super-cheap health insurance policies aimed at young people. They work like this. You give the insurer money, and it gives some of it back to help pay for minor medical treatments. This is silly. Insurance is there to pay for the things you can’t afford on your own, like having a back operation, or rebuilding your house after a fire.
The Consumer Guarantees Act means shops that sell you appliances that break down within a reasonably short period of time have to fix or replace them. There’s no electrical appliance that should break within three years.
You should make them pay in such cases. KIWISAVER DEFAULT FUNDS Super low-risk KiwiSaver funds for people who do not choose a fund for themselves. Everyone needs to make a KiwiSaver choice. If you haven’t, I predict you will regret it come age 65. MOBILE PHONE INSURANCE If you buy a mobile phone you need to insure because you could not afford to replace it, if you lost it, you have spent more than you can afford on a phone.
Avoid extended warranties * Only buy necessary insurance * Avoid debt, and debt insurance.
Oops. There go the savings.