There is no shortage of investment lessons to draw from the Budget Speech in 2018. From an investment point of view, what lessons from the Budget can we take into 2018 and beyond?
Learn from the past
The Budget Speech is a time for government to revise their financial management based on lessons learnt the previous year and to implement strategies that will improve fiscal policies. In 2018, pressure was undoubtedly on the government to take active steps to enable growth within the local economy. The end of the tax year is also a perfect time for you to review your spending and recognize where you have failed to implement your financial plans. Your annual financial review requires you to perform a detailed analysis of your spending habits, savings rate and any opportunities to generate an extra income.
Determine long-term objectives
The Budget Speech has clear objectives on how to achieve sustainable economic growth and stimulate public participation by creating a healthier business environment in the country. You must have a clear and realistic objective when you begin your investment journey, for example; investing for a child’s education or for retirement. If your objective is clear, you will be able to focus on two issues that matter: your investment horizon and the amount of risk you can take.
It is about making difficult decisions
When the Minister of Finance took over; South Africa was going through one of the worst financial crises we had seen. He had to make some tough decisions to get the economy back on track. This is about making sacrifices for future gain. Warren Buffet famously said ‘Don’t save what is left after spending; spend what is left after saving’. Part of savings is an internal dialogue. Making difficult decisions about your finances is hard to do with a consumerist mindset, where instant gratification is a way of life. The decisions you must make should be based on whether you are creating wealth or creating debt.
Set- up an implementation date
Most announcements in the Budget are effective from 1 March of the same year. After the planning, one must live. Anyone can set a goal but most people fail at sticking with it. It is important to know the “when” of your financial goals because saving for short-term goals differs from investing for long-term goals: Your investment strategy will vary depending on how long you can keep your money invested. Most goals fit into one of the three categories below—short-term, medium-term and long-term.
Invest in yourself
The Government has committed to empowering the youth through free tertiary education and job summits. This investment in the youth is an investment in South Africa’s human capital. This will likely translate to independent citizens who do not rely on government spending. For most of your life, you will be focused on converting your human capital into financial capital. You will most likely increase your human capital through further studies, getting enough sleep and eating well, which will manifest itself in the form of financial capital through an increase in income. It is worthwhile to get the most out of your human capital earlier in life, while time allows your financial capital to grow and work harder for you.
Thandekile Moloko
Wealth Manager
Thandekile started out at Inkunzi Wealth Group as a graduate trainee in the Client Advisory Centre before moving to wealth management. Thandekile is responsible for providing comprehensive financial planning and assisting our clients pursue their wealth management goals. She holds a BCom degree in Finance and has also completed her BCom Honours in Financial Planning through the University of Johannesburg.