Almost everyone wants to become wealthy but almost no one thinks they can achieve it. There is only one way to achiever wealth (besides winning the lottery) and that is through consistent saving. You need to invest at least 15% of your pre tax salary every month. If you cannot manage that, save 10% and slowly build up. Here are some other tips:
- Even saving a small amount each month will eventually add up to a decent sum of money. Saving just R500 per month at 4% interest per month will give R33, 149 R7160 in five years
You may have heard about the rule of 72. This rule states that your money will double at an approximate point determined by dividing 72 by the percent of interest. Your aim should be to get the highest rate of interest and or growth in your investments, and to be invested for the maximum period of time. The longer you are invested and the higher the interest rate the richer you will be.
So for example:
If you invested R1,000 and your annual rate of return was 10%, your money would double in 7.2 years. (72 divided by 10) So with the same R1,000 we can look at several rates of return and see compound interest at work:
2% will double your thousand in 36 years.
4% will double your thousand in 18 years.
6% will double your thousand in 12 years.
8% will double your thousand in 9 years.
12% will double your thousand in 6 years.
Now, let’s say you are 20 and you get inspired to put a thousand rand into an investment today and you make 4% compound interest on this investment. And let’s say you leave it there untouched until you are 56 years old. That R1000 will have has a face value of R8,000.(after you take inflation into account).
But lets say you wait until you are 38 to get around to saving that thousand Rands. It’ll be worth R2,000 at age 56, only a quarter as much as it would have been had you started earlier. This is the reason why saving from a young age is vital.
- It is not enough to keep saving the same amount each year because inflation will erode the value of your money. You should increase your savings by at least the rate of inflation each year.
- While time plays a crucial role in getting the best from your investments, you also need to ensure that you chose the right products, so do not forget to use a financial planner’s expertise.
- Before you make a big purchase ask yourself if it will affect your saving strategy in the long term, if the answer is yes, and you don’t really need it, walk away.
- When you are presented with an investment product do some research. You may discover details that make it unsuitable for your needs.
- As a general rule, only invest outside of your retirement funds when you have no debt. The tax-free return you receive from paying off debt is likely to be greater than returns you receive from an investment.
- If you have a lot of spare cash don’t leave large amounts of money sitting in a current account, rather put the money into a MoneyMarket account or into your home loan. You should avoid cashing in investments before their maturity dates, there will be hefty penalties. So be sure you can afford the payments before you commit. Rather cut back on other expenses before your investments.
- For more information on our savings and investment products go to http://www.standardbank.co.za/SBIC/Frontdoor_02_01/0,2354,3447_8708_0,00.html