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What does your future look like? It may seem like a question for your future-self, but the reality is that only 6% of South Africans are equipped to maintain their current lifestyle into a future that’s longer and busier than before. We spoke to Sanlam Financial Adviser, Johann Steyn, about the importance of making smart saving decisions today to secure a better future tomorrow. Here are 5 tips to get you on the right track:

1. Start saving early

Because we’re living longer, we have to save more than our parents or grandparents did to make our savings last a lifetime. “The easiest way to make provisions for tomorrow and have the least impact on your cash flow is to start as soon as you earn your first income.”

Your savings will benefit from compound interest and if you put a fraction of your salary away every month starting with your first pay check, you’ll also find your lifestyle will adapt accordingly – you can’t miss an amount that’s never been available to spend.

Sam

Age: 23
Graduated: Yes
Well-paid job: Yes

Sam wants to buy her first car, but instead invests R6 000 per month in an equity fund. Five years later she can afford a car and continue to save for her future.

Sam’s R6 000 monthly installments give her 6% real returns on her investment with an average inflation of 6%. At 63 her savings are R30 million MORE than Pete. She has reason to be positive about her future!

Pete

Age: 23
Graduated: Yes
Well-paid job: Yes

Pete decides to buy a R300 000 car with R6 000 monthly instalments. Five years later Pete wants some new wheels, but his car’s trade-in value is 45% of its residual value. Pete fears he hasn’t saved enough money to sustain his lifestyle into the future.

His savings at age 63 is R30 million LESS than Sam and has reason to worry that he’ll retire poor.

What happened?

By investing her money early instead of rushing to buy her first car, Sam earned interest on both the original amount and the interest earned on her investment.
This is compound interest.

“It’s better to start at this early stage, because even if you’ve been putting away less than someone who started saving later, you’ve been putting it away for longer. That’s where the power of compound interest comes in.” – Johann Steyn, Sanlam Financial Advisor

2. Live within your means

South Africans are greatly influenced by a culture of conspicuous spending. Living beyond our means, we often accumulate financial debt, making it hard to save for the things that really matter.

Consider that the life you live today impacts your tomorrow – not to say you shouldn’t enjoy life in the moment, but it’s good to remember that by living a little smaller today, you can ensure a bigger, better tomorrow.

3. Plan for hidden costs

Imagine you’ve reached the age where you’ve stopped working. What does your lifestyle look like? Write down all the costs involved and work out how much money you’ll need on a monthly basis. You can also work out your retirement salary using the Glacier Retirement Salary Calculator.

Certain expenses, like school fees, won’t continue whereas other expenses like medical bills will most likely increase. There may also be other costs, such as supporting your parents through their own retirement. Remember, it’s not about how much money you have; it’s about how much you have in relation to your lifestyle and expenses.

4. Find an investment fund that’s right for you

When saving for the future, it’s important to choose a product that best suits your needs. Remember, as an employee you have an option to maximise your contribution toward your retirement savings. You can contribute up to 27.5% of your earnings. Here are some of the different ways you can invest your money for the future:

  • Retirement Annuity

    The most common and favourable way to save for the future. An RA is a long-term, fixed- term solution and is best known for the tax benefits associated with it. Take a look at our wide range of retirement annuity solutions.
  • Pension Fund

    This option is usually obtained through an employer or government body. When it’s time to retire, a portion will be distributed monthly – there is no option to take out the full payment as a lump sum.
  • Provident Fund

    Saving with a Provident Fund allows you to withdraw your retirement savings at retirement. Like the Pension Fund, this fund is usually obtained through an employer or government body. The dangers of obtaining a lump sum, however, is that the money tends to deplete quicker.
  • Preservation Fund

    The Preservation Fund allows you to invest your retirement savings when you leave an employer instead of taking everything in cash and paying the tax. This fund will then pay you a specified amount on a monthly basis.

5. Life after work: Change your mindset

“Millennials don’t think about the employment sector in the traditional way.” A lot of the younger generation focus on building a career – preferably something extraordinary – rather than planning for a future where they don’t work. There are some that aren’t planning to stop working at all and they might just be onto something.

“Your biggest asset is actually your skill set. The only thing that should prohibit you from working is if your health doesn’t allow it.”

Retirement as we know it is changing. So what does life after work look like? It’s longer, more active and an opportunity to change focus or pursue second careers. If you view this time as a new lease on life, rather than a time to slow down, you ensure a more fulfilling future with the guarantee that your savings will grow with you.

Want to bring out the WealthsmithTM in you? Call us on 0860 22 33 90 or find your closest BlueStar adviser.

 

 

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