The Best Advice on Saving and Investing.
You know the importance of saving money, but perhaps when it comes to starting your plan, you do not know where to find the money or where to invest it? Maybe this is why you have never started an investment?
By saving you will:
- prevent yourself and your family from suffering future financial hardship, when the unforeseen happens.
- protect your financial future and get the best out of life, both now and in retirement.
If you have money in reserve for a rainy day, your child's education, that dream holiday, your child's dream wedding or your retirement, you are better protected, from life's curved balls financially affecting you.
You are in control!
1. Ensure you have the correct amount of life and disability insurance!
It does not matter what your savings are worth, if you are disabled and cannot earn an income.Everything you have planned for, will end.
And what about those who rely on your for a living? How will they cope?
Insurance is not as expensive as you may think. Get a quote here ..
2. Create and Emergency Fund.
Your first priority is to create a savings account that can help pay for around 5 to 6 months worth of your living expenses.
It is money you can immediately get to, when you need it.
This will help prevent you having to cash in some of your investments greatly reducing their future value.
3. Get your debt under control.
It is pointless to try save, if the return on your savings is less than the interest you pay on your debt.You must eliminate (or at least reduce) your high-interest debt, before starting any savings plan.
Before you consider saving, read the page on managing debt.
4. Where do you find the money to save?
You do not need extra cash in order to save. Rather, you need to create the cash from what you are currently earning!And you do that with a budget.
It is the best tool to identify just where your money is going and where you can plan to allocate money for your savings.
You want to "pay yourself first" by savings around 10% of what you earn.
Set your spending goals, and allocate some of your monthly income into them.
Saving just R500 every month can add up to a substantial amount over time, especially if invested into a Unit Trust!
5. Compound interest, called the 8th Wonder of the World!
This is the interest on interest that you earn.From your first month of saving or investing, you earn interest.
That interest amount is then added to your next months saving/investment amount.
Then both amounts earn interest.
The same happens with the third month and so on.
The more you save today, the more you'll have tomorrow.
It's as simple as that!
Forego 1 daily cappuccino at R25 and invest that money.
Assuming a return of 8% per year (increasing it by inflation of 8% per year) and you'll have over R710,000 in 25 years!
Time makes money, so start early!
6. Inflation.
Inflation is the number 1 enemy of saving. It can severely affect the future value of your money.You know that R100 today will buy far more than R100 in 10 years time.
In other words, the future value of your money is much less than today.
So you need to compensate for your savings to meet the threat of inflation.
Every year, you must increase the monthly amount you save by at least the inflation rate.
That way you cater for the effect of inflation and make your future money worth something.
7. Where to save?
Saving is a short-term method to accumulate money. That means you will need to use some or all of it within the next 3 to 5 years.If you want to save for 5 years or more, you are really an Investor.
3 to 5 years Saving - if you need to use some or all of your money at short notice, don't commit to a long-term plan such as an endowment or unit trust. These investments have costs and it takes time to recoup these expenses.
Ideally your savings should be in a bank.
The best product with a bank is a Money Market Account or Fund.
But, they do require quite high minimum balances.
Whilst you are saving towards that minimum balance use a normal savings account.
Bank accounts return interest and that is added to your total income for tax. Do not be too concerned as SARS have given us reasonable deductions from income tax, for interest earned. You need a fairly large amount in savings accounts before you are liable for tax. Check with a tax adviser if you are concerned.
5 or more years Investing - in order to grow your money, you do need invest it with a degree of risk. And to reduce the threat of poor returns, you need to invest for a longer period. That way the average of you return should be improved over time.
Endowments, Unit trusts and Retirement plans are all longer-term investment products to consider. The each have their own merits, both good and not-so-good!
You need professional advice and a financial needs analysis, to correctly identify which produce will be best for your needs.
I need Investment advice ...
083 655 2164
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YMYL: YOUR TRUSTED, QUALIFIED ADVISOR
Peter Pyburn - Authorised Financial Services Provider, fully licensed to render financial services since 1991. Death and Disability Planning; Retirement Planning; Investment Planning; Healthcare and Estate Planning.
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Last update: November 3, 2024