People who succeed in saving some money every month are not miserable misers who refuse to enjoy their lives. Successful savers are spread over all income, age and personality groups, but they share one common trait – they are disciplined when it comes to their saving habits.
People who succeed in saving some money every month are not miserable misers who refuse to enjoy their lives. Successful savers are spread over all income, age and personality groups, but they share one common trait – they are disciplined when it comes to their saving habits.
If any one or more of the below apply to you, you are most probably an undisciplined investor:
You wait to start saving when there will be money left at the end of the month. Unfortunately, there is usually more month left when your money runs out.
You know you should save, but really, what for? “I just take it as it comes. I’ll make a plan when I need money to buy something or go on holiday. There is always my overdraft when things get tough.”
You listen to investment advice at a braai. That’s where you will usually pick up some news about a friend who invested in a company that apparently delivers returns way above the current rates.
Fortunately, it is never too late to start saving. Every rand you save can make a difference to your future in the long run.
Niki Giles, financial director at Sygnia Asset Management, suggests four steps to establish healthy saving habits and to become a disciplined investor.
“You need a goal. If there is no purpose for you to save, you will never start. Even if you try to save, but don’t have a goal, it is very easy to spend money unnecessarily,” Giles says.
Ask yourself where there is a need for saving in your life – be it for retirement, education, an emergency fund or a holiday – and start saving for it.
You should save before you can spend. An easy way to achieve this is by having a debit order on your bank account. The moment your salary gets paid into your bank account, a specified amount should be debited into a savings vehicle. That way it will be out of reach before it gets spent.
“Whenever you receive a salary increase, it is also wise to upwardly adjust the percentage of your income you put aside for savings. Otherwise an increase can be easily absorbed by living expenses.”
This also holds true whenever you receive some kind of windfall, such as a bonus. Decide beforehand on the percentage you plan to save and stick to it.
You need to decide on a savings vehicle. This will depend on your savings goal and the risk you can afford.
For example, you are 23 and start saving for retirement. It is a long-term goal and you can take on more risk as your investments will have time to ride out market fluctuations. On the other hand, if you are saving for a holiday in 12 months’ time, you don’t want to take on too much risk as you won’t have much time to make up for depreciated values.
A financial adviser can help you to decide which investment vehicles are the most suitable for your risk profile and goals.
Giles says balanced funds are currently quite popular. These funds have exposure to the different asset classes, so they invest in a mix of shares, bonds, property and cash. The risk is lower than with an equity-only funds and they should offer higher returns than a conservative investment such as a savings account.
Then you can choose between passive and active investments. You may be comfortable with an active investment if you or your chosen fund manager are able to make informed decisions to outperform the market.
A passive investment tracks a certain benchmark or index and as they require no active management, the fees are usually lower than those of active investments.
Remember that high fees can take a huge bite out of your savings. Unfortunately it is not always clear which fees are being charged.
Giles says apart from the upfront fees you should be aware of additional asset management fees if the investment is in a model portfolio or wrap fund; platform fees if the investment is accessed via a LISP; as well as withdrawal fees. Always ask if the quoted fees include VAT.
Also keep in mind that intermediaries may charge a once-off fee or ongoing commission for advice.
It is easy to become worried when you read about market volatility. The immediate reaction when you see a decrease in your investment value is to consider a less risky investment. Giles warns not to make any hasty decisions. Rather ask an informed adviser or investment manager for advice.
“Don’t let fear cloud your long-term strategy. Sudden changes may cost you dearly in the long-term. Rather ride out the volatility; the returns of your riskier fund should again outperform the returns of lower-risk funds if you stay invested,” she says.