Wishing you a happy, rewarding and successful new year.
Research has shown that approximately 6% of South Africans will not have to experience a significant decline in their standard of living when they retire. Here are a few financial habits which, if adopted, will hopefully stand you in good stead as you navigate through 2023 and beyond.
Start saving as much as you possibly can as early as possible and for as long as you can. The world’s greatest investor, Warren Buffett puts it well: “Do not save what is left after spending; instead spend what is left after saving.” As you save, so your wealth will multiply through investment returns and the miracle of compounding; the so-called eighth wonder of the world.
Invest for the long term, not only in your company pension or provident fund but also in a spread of other investments, such as unit trusts, share portfolios, voluntary investments and business interests. Avoid being obsessed with short-term market movements and fluctuations in the value of your investments. It is far more important to have a plan and remain committed to a well-thought-out, long-term strategy.
Resist the urge to spend your money on unnecessary purchases. It is better to delay short-term gratification to enjoy greater rewards in the long term. Spend less than you earn and always live within your means. Take the time to draw up a budget to understand exactly how much you expect to earn and how much you have available to spend every month.
Manage your debt. Ideally, you should avoid taking on any debt but sometimes it is unavoidable. There are different types of debt, some good – such as a home loan and some bad – such as a clothing account or an outstanding credit card balance. If you do owe money, how you manage this debt is critical. You should ensure that you settle debts with the highest interest rate first and as quickly as possible.
Always take advantage of the various tax-saving opportunities available from products such as retirement annuities and tax-free investments. Importantly, avoid the temptation to access any of your retirement savings before you retire.
Make sure that you have sufficient life, disability and dread disease cover and that you belong to a reputable medical aid. Always ensure that your most valuable asset, your own life, is insured against life’s eventualities, which could derail even your best-laid plans. Also, ensure that your estate plan and will are reviewed regularly and kept up-to-date.
Finally, appreciate that most successful individuals make use of the expertise of a professional financial planner to assist them to navigate the road to their financial security.
It is never too late for you to adopt these habits, whether you are starting out in your career, nearing the end of your career or even in retirement. Doing so could make the world of difference to the quality of life you can lead in your golden years.
Rands and Sense is a monthly column written by Ross Marriner, a CERTIFIED FINANCIAL PLANNER® with PSG Wealth. His Financial Planning Office number is 046 622 2891