Time does seem to be going really fast. Now, there are fewer signals differentiating a Sunday from a Monday. We are already halfway through the year. Even if time passes slowly in the moment, this is a suitable time to reflect, reassess, and where necessary change the financial goals you had set for yourself at the beginning of the year.
The South African Savings Institute declared July the ‘National Savings Month’, to promote a culture of saving. It may seem a bit strange to be concerned about saving in the middle of the year, but it’s necessary to understand the importance of saving, regardless of the challenges we are going through.
Where do you start?
We all aim to put away a certain amount of money every month and then somewhere along the way we lose sight of that goal, and then stop trying altogether. The change from being a spender to a saver begins with one’s attitude. You must start to look at savings as a reward rather than a punishment; that way it makes the journey to wealth creation much easier.
Achieving your long-term financial goals depends on two complementary skills: fiscal and investment discipline. Fiscal discipline means putting together money to invest, while investment discipline involves building an investment portfolio in order to achieve your investment objectives. It’s important to remember that to be a successful investor; you first have to be a successful saver. Saving is the first and most important step and investing your savings may help you achieve your goals easier.
Build a financial safety net
Our brains are naturally wired to prioritise our short-term happiness; as a result, some people completely avoid thinking about potential negative events, like emergency expenses, ill-health, or retrenchment. However, not thinking about these events is not likely to make them not happen. If there is one of many lessons to take from the Covid-19 pandemic, it’s that shocks to the financial system can have upsetting effects on your income and personal expenditure. A financial safety net can protect you against unexpected lifestyle changes. The effects of not saving may be that you are forced to use a loan or to tap into your retirement savings during an emergency or a loss of a job.
Be patient and disciplined
Most people have insufficient savings not because they do not care about their future well-being but mainly due to behavioral reasons. There is a human tendency to choose a small instant reward today over a larger delayed reward. Eating unhealthy foods today and postponing dieting for tomorrow, or watching TV instead of studying for an exam, or buying a dress that may go out of fashion instead of paying down your debt are typical examples. If you have an extra R500 disposable income, you can put that money into a basic investment. Small behavioral changes like these can make a big difference over the long-term. Of course, investing does not guarantee financial security, but we believe it is a better way to prepare than not attempt at all.
Why is this important?
Imagine that your personal life is a business. Are you profitable? If you are ignoring your monthly repayments and buying expensive things on credit, consider how you would react if one of the companies in your investment portfolio was doing the same thing. What about a company that managed to go a whole lifetime without ever having cash in the bank to finance future expenses?
There is an exhaustive list of benefits of saving, but after a certain point, it is almost more important to stop thinking and begin putting money away. There are various ways to save and your options are naturally influenced by your circumstances. Remember: if you want to be an investor, you will need money. Managing your money carefully is one of the best ways to get some money.
Head of Investments
Sphelele joined Inkunzi Wealth Group in 2013 and has 9 years’ experience in the investment management industry, having had previously worked for Allan Gray and Regarding Capital Management. Apart from being an active member of our investment team, Sphelele is also responsible for the management of our business. He holds a BCom degree in Economics from the University of Pretoria.