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Ponzi Scheme – What Is It, And What Should You Watch Out For?

With so many scams, schemes and fraud opportunities occurring to everyday citizens, you’ll want to be certain that you don’t fall victim yourself to the more common ones.

Ponzi schemes are a type of investment scam that pays existing investors with the funds that are collected from new investors. There is no ‘real’ investment that actually occurs, as the promoters of the Ponzi scheme use the money deposited by early investors to pay out the first ‘dividend’. This makes the investors feel more comfortable, and choose to invest even more into it, while also encouraging their family and friends to join.

Ponzi schemes are generally operated by a promoter, who convinces people to invest money by promising high returns on the investment. They then use the money invested to pay a return, which tricks the investor into thinking that they are receiving the promised return. Generally, a Ponzi scheme self-destructs. Either the promoter spends the money too quickly, or the investor pool dries up.

If you suspect something to be a Ponzi scheme, you may want to watch out for the following warning signs:

  • The rate of return is suspiciously high (up to 10% per month)
  • Someone you trust tries to recruit you
  • The recruiter has already invested in the scheme and received excellent dividends

If you have already invested in a Ponzi scheme, it is advisable to do the following:

  • Refrain from investing any more money into it.
  • Check if the company is on Moneysmart’s list of companies that you should not deal with. 
  • Check the company’s license number on ASIC Connect’s Professional Registers
  • Report the scam to the Australian Securities and Investments Commission (ASIC)
  • Warn your family and friends to stop them from becoming victims.

If you’re someone who often finds it difficult to make large lump sum payments for goods or services, you may want to consider looking into “Buy Now Pay Later” services.

Buy now pay later essentially means that, rather than paying in a full lump sum payment for a product or services rendered, there may be an option to pay through instalments of a certain amount over a set period to make the sum of the full amount in total. This method should allow you to pay in full for the product or service without overly straining your finances – you pay back what you can, as agreed upon when you begin the buy now pay later service.

Some popular buy now pay later services include Afterpay, Zip Pay, Brightepay, and some credit card networks such as  Mastercard and Visa, can offer buy now pay later arrangements.

Though it can be a convenient, immediate solution, it may be challenging to juggle the necessary repayments with other financial commitments. It’s not always the most appropriate method for people, and you should bear in mind your situation and ability in paying back the amounts. 

Before you sign up, keep in mind: 

  • It becomes easier to overspend with buy now pay later services, so know your limits on what you can and can’t afford.
  • You will be charged fees and costs to use the service, which can add up to a princely sum in and of itself.
  • Keeping track of your payments can be tricky if you’ve signed up for multiple services.
  • It could affect your loan applications for a car or mortgage as lenders consider buy now pay later spending just as much as your credit score.
  • Late repayments can appear on your credit report, which affects your ability to borrow money in the future.
  • Layby can be a cheaper alternative to buy now pay later, with no account-keeping or late fees to consider

If you are someone who could make use of BNPL services, you may wish to:

  • Ensure that when using the BNPL service, you stick to a set limit on what you spend so that you can comfortably pay it back later. 
  • Aim only to have one BNPL account at a time to manage payments through, rather than confuse yourself with multiple payments across different providers.
  • Always budget for bills, loan payments and BNPL payments, and 
  • Rather than use your credit card for payments to your BNPL account, consider linking to your debit account instead.

If you would like assistance in planning your financial future, help in managing your budget or some friendly advice, see us for a chat about what we can do for you.

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John Briggs

Jane Noller has been my accountant for the last 15 plus years. I can testify to Jane’s professionalism and expeditious manner in dealing with the day to day issues that surrounds our business accounting.

John Briggs

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David and Alison Parker

I have been consulting J L Noller and Co. (more specifically Jane) for six years and during this time I have found her to be professional, efficient and easy to discuss all accounting and taxation matters with. Her office team are all polite and friendly also.

David and Alison Parker

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Carl Gillmore

I have used Jane & the team for the last 6 years for all of my business & personal accounting needs. They have always been professional, easy to talk to & available when we have needed assistance.

Carl Gillmore

Carl Gillmore Landscape

John Briggs

Jane Noller has been my accountant for the last 15 plus years. I can testify to Jane’s professionalism and expeditious manner in dealing with the day to day issues that surrounds our business accounting.

John Briggs

Registered Building Certifier