This year marks the 46th anniversary of the Soweto Youth Uprising, when black South African students took to the streets to assert their right to education equality.
Today all South Africans enjoy basic human rights, so let’s celebrate their courage and solidarity by remembering that because of them we can now have better futures – especially when it comes to our finances. As the saying goes: the best way to predict the future, is to create it.
If you’re just getting started on your investment journey, perfect! Now is the time to focus on financial resilience, and to begin building a buffer to protect you from life’s financial knocks – we might not know when and where they’ll come from, but they are sure to happen.
But how? Pat Magadla, Senior Business Development Manager at Old Mutual Investment Group, shares three simple, yet powerful tips to help you make the most of your money, right now.
Start that emergency fund
This is the first, most essential step you can take to make sure that emergencies – such as car trouble or replacing an appliance – doesn’t turn into a crisis.
“Ideally, you should aim for three-to-six months’ worth of living expenses,” says Magadla.
For this reason, it’s a good idea to draw up a monthly budget, so that you know exactly how much money you’re spending each month, and on what.
“It is crucial to live within your means,” adds Magadla. “Ideally, you should live below your means. This means that if you can afford a R2 million home – rather opt for a R1 million home, so that you can put the balance of your money towards building up your investments”.
Magadla recommends applying the 50/30/20 principle to your budget, as it’s simple and easy to remember: use 50 percent of your monthly income for essentials such as your home, food and so on; use 30 percent for wants; and the final 20 percent can go towards investing and debt repayment (if you have debt, pay this off first, then invest).
Once your emergency fund is in place, you can move on to tip no. 2.
Start investing – pronto
“The best time to start investing? Ten years ago,” declares Magadla. “The next best time, is right now!”
Investing may sound scary and complicated, especially if you’re just starting out, but it is really simple and straightforward.
“You don’t need to wait for an increase or a windfall – you can start right now with as little as R500 per month. It’s an especially good idea to begin an investment portfolio when you’re young, because time is on your side, says Magadla.
“Saving is an essential first step, but it’s not a good long-term strategy for financial resilience. Putting money under your mattress, or in a savings account, will not help it keep up with inflation, meaning your money will lose value over time. To keep up with – or even better, get ahead of – inflation, you need to take advantage of compound interest,” advises Magadla.
So rather invest your money than just merely saving it!
For beginner investors, Magadla recommends a tax-free investment account, which allows you to invest R36 000 per year, or R500 000 over your lifetime, tax free.
Once you get the hang of it, you can begin to look into additional investments such as unit trusts, and other investments both locally and offshore (the Old Mutual Investment Series covers all the bases and offers investment solutions for every stage of life).
Overwhelmed? This is why it’s important to…
…Get smart
Learn all you can about the best way to manage your money.
“Financial literacy is an investment in yourself, so putting in the effort to learn about it will help you make the right financial decisions for your future,” says Magadla.
Get curious: listen to podcasts, visit financial services websites and peruse their free content. Read books, track news updates, and subscribe to newsletters… There are plenty of resources out there – you will soon find services and expertise that talk to you in a way that clicks.
“Finally,” says Magadla, “empower yourself by consulting a qualified, accredited financial planner to help you on your journey. Think of it as a financial fitness coach who can hold you accountable, advise you, motivate you and be an objective ally in your quest for financial resilience”.
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