Pushing back the idea of retirement until you’re in your 30s is a bad idea. You need to start saving towards retirement from your very first pay cheque. “The sooner, the better,” says Sonia du Plessis, a financial planner at Brenthurst Wealth. “Take ownership and know your retirement comes first – that’s what paying yourself first is. You can save up to 27% of your income towards a retirement or pension fund where you can get tax back from the South African Revenue Service.”
Retirement is about living a comfortable life after 60, when you no longer work and have no steady income. The longer you wait, the harder it will be, as statistics show that only 6% of South Africans can retire with the same lifestyle they had when they were working.
Set up an emergency fund
This is the cushion you need, should you fall on hard times. Many people don’t have enough saved.
Thandi Ngwane, the head of strategic markets at Allan Gray, advises: “If you commit to investing via a monthly debit order, consider increasing the annual percentage increase – the amount your deposit goes up each year – from the start, as this will help you to slowly raise your contribution without having to think about it.”
There are various forms of investment, from stocks and money market funds to unit trusts, tax-free savings and offshore accounts. It’s about choosing one that works best for you. The deciding factors are the interest and cashing-out conditions.
Du Plessis says: “Offshore investment are a good idea for all South Africans. If you can have at least a quarter of your money exposed to offshore markets, it’ll be great, because our market has been flat for the past three years. You can move money offshore via a unit trust where it’s an asset swap – the money is offshore, but is converted back to rands. You can start with a minimum of R10 000. Or, you may want to invest in multi-listed companies.”
Another great form of investment is tax-free savings. Whether you do so month to month, or just deposit a lump sum in the account, is up to you.
You may have your own home or be considering buying one. But bear in mind that with every investment there are pros and cons.
Barbara Mundell of the Financial Planning Institute of Southern Africa adds: “What most people don’t take into account, is the added costs involved in an investment property. Things like maintenance costs, complex levies and increasing rates and taxes can affect the investment return of property. Most people also forget the tax they’ll pay on the profitable rental income they receive, and when they sell the property they don’t know about the capital gains tax. Globally, we have seen a slowdown in the growth of property values, so it shouldn’t be the only investment.”
Save for education
Going to school is about investing in yourself. It pushes you to be better and increases your chances of getting a promotion. Many companies even offer to pay their employees’ study fees as they see it as an investment: you bring back new fresh ideas and enrich the company. If your employer doesn’t pay your fees or you can’t afford to study part time, explore other options – perhaps there is a scholarship or bursary you can qualify for. Open a savings account specifically for studying.
These saving and investment moves may seem tough now, but in the long run, you’ll be proud of yourself. With just these five smart moves, your net worth may rise all the way to the top.