In our first financial informer of 2023 we look at the issues that arise with being under insured, as well as how playing the debt game properly can actually assist in creating wealth.

Break a leg

It is a little known fact that the owners of the World Trade Centre’s twin towers believed that the simultaneous destruction of both towers to be impossible and that they believed the probability to be so far-fetched that they only ever insured one of the towers. In a similar fashion, most of us cannot imagine a freak accident causing a permanent disability – and from a risk perspective our instincts would be right. In fact, its not the freak accident we need to be worried about, but it’s the less scary risks such as diabetes, heart, fractures and back pain that place us at risk of temporary or permanent incapacity.

Recent research has revealed that most South Africans are hopelessly under-insured in respect of disability – a situation brought about by a combination of affordability, lack of information on how insurance works, a misunderstanding of what causes disability, together with a healthy dose of ‘it’ll never happen to me’.

The debt game

Contrary to what you may believe, debt can help build wealth – especially if the debt is used responsibly with a clear plan and objective. There are three ways that may help you to better utilize debt to increase your wealth over the long-term.

It’s important to outline the difference between efficient and inefficient debt.
Inefficient debt is generally associated with assets that depreciate in value and have no potential of producing income or offering tax benefits. This could include debt such as a car loan or using a credit card to pay for a holiday.
Efficient debt on the other hand is acquired to purchase assets that have the potential to grow in value and/or generate income that can be used to pay back the debt. Examples of such assets include property, shares and other securities such as managed funds. It’s this type of debt that can help you build real wealth over the long term.