Why though is the central bank so concerned? A lethal combination of low interest rates and the current consumer boom has allowed households to go increasingly into debt. So much so, in fact, that household debt as a percentage of disposable income shot up to a record 65.5 percent in the fourth quarter of last year – the highest ever recorded in the country.

In other words, we are spending 65 percent of our money on tackling our debt. That leaves just 35 percent to spend on maintaining our lifestyles, not to mention what we should be putting in our financial portfolios.

Lowest savings recorded

Meantime, net personal savings came to a meagre 0.1 percent of disposable income in 2005's last quarter — the lowest ever recorded in the country.

And there's more bad news. According to Paul Leonard, a certified financial planner from MoneyTalk, the average employee works for some 40 years. That equals around 14 600 days of your life. Were you to subtract holidays and weekends, you're left with just over 9000 days in which to earn all the money on which you will have to live, and retire.

Should you live to 100 — and more people are doing just that — you will need to have enough saved to see you through to the end.

The irony is things needn't be so bad. According to Leonard at the Acsis Financial Planning Club, should you start with a R10 000 monthly salary, receive an eight percent increase annually, and work for 40 years, you would have made a total of more than R31-million. Few can however sport that total in their bank account when they retire.

The wonder of compound interest

So just where does all that money go? Most of it goes into what Einstein called the eighth wonder of the world: compound interest.

Say you buy a house for R500 000 without putting any deposit down. You have 20 years, or 240 months, to pay it off, at an annual interest rate of 10.5 percent. Your average monthly payment (over the 240 months) amounts to R4992. So instead of paying R500 000, you'll end up paying R1 198 000.

The interest you paid? That comes to more than the value of your house, at R698 000, an amount, Leonard says, that should be seen as a lost opportunity that you could have invested.

The lesson, says Leonard, is that you need to eliminate your debt — as soon as possible — before starting to invest in non-retirement products, including equities. Your best investment, he emphasises, is debt reduction.

This can be done in just two ways — by increasing your cash flow or by an injection of capital — and by pumping this extra money into paying off your debt.

Buy just four fewer CDs

In order to increase your cash flow, take stock of how much you're spending in a month, cut out any unnecessary expenses, and use the excess to service your debt. Just four fewer CDs a month, for example, could make some R500 available to you. Shop around for better interest rates to free up more cash and consolidate your debt where possible.

For a capital injection, he suggests you sell those possessions in your house that take up space and are never used. Moreover, because your best investment is debt reduction, strip the cash out of non-retirement funding investments (but beware of any penalties that may be imposed on you in the process).

Then use this extra cash to pay off your debt, from the smallest amount you owe to the largest (this is because you'll be able to see the results much quicker, giving you more incentive to keep it up).

Does it really make a difference? No doubt, Leonard says. Even though you may have to hold off buying those luxuries for a few years — the plasma TV and surround sound, for instance, may have to take a back seat — but this way you could pay off your bond in less than half the time.

Once that's out the way, you're free to start spending more on your lifestyle purchases, while also beefing up your financial portfolio.

Leonard told iafrica.com that it comes down to spending "less than you earn", and avoiding interest charges. Take out bonds on essentials like your house and your car, but if you're considering that Abflex machine that tickled your fancy, or that twenty-foot yacht, make sure you have the cash to buy it.