By Justin Wingfield
Invest your cash early...Welcome again to Wingfield’s Wonderful of Finance. This is of course the second in the series of ways to manage your personal finances, invest your savings and grow them into real wealth.
Following on from my first article, in which I talked about the 3 easy steps towards saving, I thought it would be most relevant to provide 2 simple savings options available to the first time investor. Before I highlight these however, the first step is to identify an amount you know you can comfortably afford, perhaps R200 a month. Set up a debit order to minimise hassle. This will also ensure you are consistent with your contribution and will soon forget about it.
The first savings option that I would recommend is an endowment plan. An endowment is a minimum 5 year savings plan, which gives you the opportunity to invest on the stock exchange or property as well many other exciting structures. Your contributions must continue for at least five years before you can withdraw the funds.The second option is a unit trust investment, which allows you to grow your money in the same way as an endowment, but your investment is available to you at very short notice (usually 48 hours). There is therefore no minimum time period for which your money must remain invested.
Both options provide an excellent and simple way to grow your savings faster than inflation. You might ask, “why would I invest in an endowment, which forces me to invest for more than 5 years.” This, in reality, is not actually a bad thing. Investing your money in an inflation beating structure needs to be left for at least 5 years anyway. Therefore the endowment structure simply enforces this discipline, and in the long term will be beneficial.
But how important is it to save when there are so many better ways of spending our money? Sure, life must be enjoyed and spending your hard earned money on cool things is always very enjoyable. But, never underestimate the importance of saving. Indeed saving is the only way of creating wealth and therefore improving your long-term financial well being.
Saving can be undertaken in a number of different ways, and I will talk about those in later articles, but for now let me start by giving you a few tips on how to start saving.
Step 1: Think about the future
Take time to consider what is most important to you. What are your medium and long term goals? Is it getting your first car or home? Is it retiring early, or perhaps even building your own business?
Step 2: Draw up a plan and a budget
Draw up a plan for your goals and work out a budget. Consider how your are spending your disposable income. Nothing left? You may therefore need to reconsider your spending habits. Be a little more circumspect and give greater thought to the things you may not really need. This will certainly make way for a little if not a lot of additional disposable income.
Step 3: Keep your discipline
Now that you have a plan, goals and are running your budget effectively, keep developing the discipline. Discuss your plan with a financial advisor and consider ways of investing and therefore growing your money, in a manner that suits you best.