Households are facing tough times as rising costs are stretching already thin wallets, but now is not the time to take desperate measures such as entering get rich quick schemes.
Instead, the real secret to building wealth lies in your everyday spending decisions and financial habits, says the Association for Savings and Investments South Africa (ASISA).
Peter Dempsey, Deputy CEO of ASISA, states that as July is Savings Month, now is the perfect time to look at practical ways in which you can achieve the wealth you need even though times are tough. He notes with concern a disturbing trend where many South Africans who are facing increasing financial pressures have become vulnerable to enticing stories of impossibly high returns offered by pyramid and Ponzi schemes.
“Unfortunately, there is no magical solution to achieving the wealth you need. The real path to riches lies in re-evaluating your financial priorities, and taking control of your spending each and every day,” he says.
According to Dempsey, most people have not accounted for those small everyday expenses which over time are tipping them into financial trouble. In difficult economic times, you must understand exactly where your money is going through a detailed budget before you can make necessary decisions.
Once you have drawn up your budget, you need to streamline your finances by cutting back on wasteful expenditure and bringing your spending in line with your income.
With rising interest rates, the cost of expensive debt continues to grow. Prioritise ridding yourself of this debt in order to minimise its risk to your budget, says Dempsey.
He explains that having debt on your personal balance sheet is like having widening holes in the bottom of a bucket where your money keeps flowing through. You will be able to accumulate wealth and fill your bucket far more quickly once you have plugged the holes.
3. Pay yourself first
Paying yourself first is very important maxim for adding to your riches, but it does not mean splurging on all the latest goods that catch your eye, says Dempsey.
While not nearly as glamorous, paying yourself first means paying your future self first, and making sure that you have provided for unexpected life events such as death or disability, as well as planned events such as retirement.
A large bank account is not a true reflection of wealth, as rising costs and inflation means that you could lose the purchasing power of your hard-earned savings over time. Investing wisely for the long-term is therefore vitally important in order to grow the value of your money for the future, says Dempsey.
“This means investing your money with financially stable institutions and in regulated savings and investment products, rather than questionable pyramid or ponzi schemes offering unrealistic returns that will inevitably fall apart,” he emphasises.
A trusted financial adviser can help you to develop a unique long-term financial plan, complete with appropriate savings and investment products, that will help you to meet your financial goals and manage your wealth for your whole life even in times of economic difficulty, says Dempsey.
“Research show us that advised investors remain more disciplined about decisions to spend, save and invest, better financially protected and have more assets,” he says.