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Lay down your little nest egg

14 June 2012 Nico-Louis Minnie, head of investments: customer value at Liberty Retail
Nico-Louis Minnie, head of investments: customer value at Liberty Retail

Nico-Louis Minnie, head of investments: customer value at Liberty Retail

Here’s a true story about two people who each started this year as robust, socially active 70-somethings.

A few weeks apart in January, each of them – I’ll call them Margie and Paulie – had accidents that caused painful lower-back injuries. Margie went straight into hospital where she stayed until the pain cycle was broken, and a physio had got her back on her feet with a walker. At home a week later, she and her daughter sorted out systems to keep Margie safe and comfortable while she recovered: they called a handyman to install grab rails in Margie’s home; they hired a carer until she was independent again.

In contrast, Paulie avoided hospital because she has no medical scheme, so for weeks there was no diagnosis. She lives in a retirement complex where the staff did their best, but it’s not a frail care facility. Without a carer, Paulie was neither eating nor drinking properly. Humiliatingly, she sometimes soiled herself. By the time her children knew to step in, she was dehydrated, frightened, weak, and appalled.

Within three months, Margie had pretty much resumed normal life. In contrast, Paulie is still unable to move from her bed; she has pretty much given up.

The difference between Margie and Paulie? Money.

Paulie is not a stupid woman, but she lived by the mantra: “take care of today, and tomorrow will take care of itself”. Inflation, unfortunately has made tomorrow very insecure. If you had put R1 under your mattress in 1980, says Nico-Louis Minnie, head of investments: customer value at Liberty Retail, it would be worth less than 5c today. That’s why, although I gross in a month what my dad paid for the family home back when he was roughly the age I am now, I am less well off: I get nothing like the value he did from money.

Remember, for instance, when you had change from R4 for a litre of milk? That was only 10 years ago. Finweek recently looked at how prices have changed over a decade, and cited some eye-watering statistics. Today, you need to take R10 on the milk run – milk has gone up by around 160% in a decade. Petrol? It’s increased by 240% (I bet your income hasn’t). Housing? You could rent a nice 3-bedroomed home with pool near schools for around R7 600 per month in 2002; it’s around double now, if you’re lucky. And that’s why so many of us find ourselves tense about money as we try and make our way through the world on a wallet that’s not delivering to plan.

If, as Minnie says, inflation means our purchasing power halves roughly every five to six years, how can we plan for a future that’s relatively comfortable?

The answer is simple: savings. A hand-to-mouth existence is fine as long as you have a predictable inflation-proofed income. But only very few lucky people have a lifetime of that, and even for them, retirement can signal an end to comfort. We must save in the fat years to see us through the lean ones.

Savings takes many forms: investment (in property, shares or other financial instruments), cash stores in high-interest instruments like money markets; and retirement or other structured savings funds. Each has a role that is more or less appropriate, depending on where you are in life, and on your circumstances. But what is unavoidable is that all of us – no matter how much or how little we earn – are battered by economic forces we cannot influence, and the only way to land softly is to build up the plumpest cushion we possibly can.

If you need help in drawing up a picture of your financial life, and adjusting it to a picture that makes you safer, make an appointment to see a registered/accredited financial adviser.

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