Getting rid of your cash guzzlers
Date: 01 Sep 2008
In the last issue of Money Matters we looked at how the increase in the petrol price should cause driving habits to change. Perhaps you drive what's known in the industry as a "fuel guzzler" - a 4x4, or a large bakkie, or a car with an engine that needs a lot of "juice" to pump out the revs. You might be thinking it would be a good idea to sell your fuel guzzler and buy a little runaround in its place. It's a logical idea, but financially, it's flawed. The demand for these vehicles has slumped (obviously, because not many people want to buy one right now), so the price you'll get will be lower than the car's actual market value. Also, you'll pay VAT on a new vehicle, and unless you can afford to buy a new car with cash, you'll be stuck with repayments that might actually cost as much, if not more, than you're currently spending on petrol to keep your fuel guzzler topped up. So the answer really is to sit tight, hold on to your vehicle until it's on its last legs and you have no other option than to sell, and consider starting a lift club in the meantime! When our budgets are tight, every expense comes under scrutiny. A typical expenditure that people consider dumping is insurance. Perhaps not all of it - maybe you're thinking of holding on to your life insurance (because you will definitely die one day) but cancelling your disability insurance (because you might never need it). But there are ways to keep your insurance cover going without actually cancelling any of your policies. Take your car insurance, for example. Cars devalue year by year, so you should ask your insurer to reduce your cover to match the value of your car. You might originally have insured it for R60 000, but if it's only worth R30 000 now, insure it for that amount. This is an exercise you should do once a year anyway, regardless of how tight your budget is. Household insurance is another area where you can reconsider your cover. Items that one insures for sentimental reasons, like granny's wedding ring, cannot be replaced anyway. No insurance payout will bring back an item that had sentimental value, so is it worth paying for it to be insured? Another way you can reduce your insurance premium is to increase your excess - this is called "voluntary excess" - where you choose to pay a higher excess than normal in the event of a claim. Something you definitely cannot go without is life cover, particularly if you are the breadwinner in your family. If things are tight now, how much worse would they be for your family if you died and left them without an income? Sadly, as statistics from life insurers show, many people have cancelled their life insurance in the past few months due to budgetary constraints. Life insurance should not be sacrificed - there must be something else in your budget you can do without. You can only consider cancelling your life insurance policy if you have no debt and no dependants - and even then, you need a funeral policy or some funding set aside so that your funeral can be paid for! Health insurance should also not be compromised. Keep your medical aid, but feel free to ask your adviser if your benefits can be revised or your plan changed to another one to save a little bit of money. Then there's the tricky question of disability insurance. When you are scrimping your way through the month, do you want to be paying a premium that insures you for a life event that might not even happen? There is no easy answer to this question. If you can afford even a small amount of disability cover now, do so, and consider increasing it once the economic pressure lifts. Also, some life insurance products give you disability and life cover on the same policy - so, if you become disabled, you can claim your cover amount but this will reduce the amount that would be paid on your death. Insurers are more flexible than many people realise, and a tough economic time can be the ideal opportunity to get to grips with our policies and reassess what we really need to be covered for.
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