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CityPress - - Business -

n a re­cent in­ter­view on Bruce Whit­field’s Money Show on 702 and CapeTalk, su­per­saver Ju­lia and her fi­nan­cial ad­viser, War­ren In­gram, shared the story of how, by com­mit­ting to sav­ing a third of her salary from the age of 26, Ju­lia has man­aged to save more than three times her an­nual salary in just eight years. Ju­lia in­vested in an ex­change-traded fund start­ing with R8 000 a month, in­creas­ing each year in line with her an­nual salary in­creases. Eight years later, at the age of 34, not only is she a mil­lion­aire, she re­cently bought a house and has had a child. She has en­joyed her life and hasn’t lived fru­gally, but she has lived within her means, pay­ing a third of her in­come into sav­ings and avoid­ing ex­pen­sive car debt.

Chris­tine wrote in to ask us how best to man­age her fi­nances, and we sug­gested that, with the right at­ti­tude, she could find her­self in the same po­si­tion as Ju­lia in just eight years.

“I am 26 years old and I don’t have any re­tire­ment or sav­ings, and have not in­vested a cent. I am rent­ing and am happy to con­tinue do­ing so as buy­ing a house to live in will cost me more than my rental,” wrote Chris­tine, who has R6 000 a month to con­trib­ute to­wards in­vest­ments. She has no debt or de­pen­dants, and her car is paid off.

“My ques­tion is: where do I start? I have thought of split­ting the R6 000 into buy­ing a prop­erty to rent out, an emer­gency fund, in­vest­ment and re­tire­ment. I am not sure if this is best as it is not much and I fear I will end up with bits and bobs that won’t be worth it.” Chris­tine added that she did not learn about money man­age­ment from her par­ents.

“My goals are to build up a port­fo­lio that will en­sure a com­fort­able re­tire­ment, pro­vide pos­si­ble ex­tra in­come as I hope to be­come less de­pen­dent on my teach­ing ca­reer and also save for a rainy day.”

Boi­tumelo Mothoa­gae, fi­nan­cial ad­viser and head of cus­tomer re­la­tion­ship man­age­ment at Lib­erty, has this ad­vice for Chris­tine:

The first thing you will need to do is con­sult an ac­cred­ited fi­nan­cial ad­viser about help­ing you do a full fi­nan­cial needs anal­y­sis (FNA). The FNA will help to crys­tallise: What your fi­nan­cial needs are How much you should be con­tribut­ing to each need Your fi­nan­cial plan – what do you need to main­tain your lifestyle? What your as­sets and your li­a­bil­i­ties are What your in­come is and what your ex­penses are What steps you need to take now to en­sure you are where you want to be fi­nan­cially in five, 10, 15, 20 years

Your fi­nan­cial goals/ob­jec­tives. For ex­am­ple, you want to buy a house in five years, you want to re­tire at 55

The FNA is a plan that gives you a de­tailed view of ex­actly how much you need to be sav­ing, where your short­falls are (for ex­am­ple, re­tire­ment) and how much money you will have at a spe­cific life stage. It will be im­por­tant when de­ter­min­ing how much of your R6 000 you should be al­lo­cat­ing to­wards: Your sav­ings plan Your re­tire­ment plan Your lifestyle pro­tec­tion plan (in­come dis­abil­ity, re­trench­ment cover, etc) Your emer­gency fund It is never too late to start sav­ing. The only dif­fer­ence with start­ing late is that it will cost you more to get to your fi­nan­cial goals than it would have if you had started ear­lier. How­ever, you still have 29 years be­fore the le­gal age of re­tire­ment (55), and this qual­i­fies for long-term plan­ning, which max­imises the ef­fect of com­pound in­ter­est. So the sooner you start with your re­tire­ment plan, the bet­ter.

Re­tire­ment

You and your fi­nan­cial ad­viser can de­cide what your best ve­hi­cles for sav­ing would be. If your em­ployer does not pro­vide a re­tire­ment fund, then you would need to con­sider a re­tire­ment an­nu­ity. This is usu­ally the pre­ferred plan for re­tire­ment be­cause they are tax ef­fi­cient and pro­tect your money from cred­i­tors.

Depend­ing on your cur­rent lifestyle, when you do re­tire, you will need about 70% of your last pay cheque to sus­tain you for the rest of your life, depend­ing on you not hav­ing any debt. If you want to travel the world when you re­tire, you will need to put aside a bit more. The FNA will work out how much you need to put aside each month to achieve this.

Prop­erty

I know that you have in­di­cated that you do not want to buy a house. How­ever, a house is an as­set. By rent­ing, you are help­ing some­one else pay off their as­set. Af­ter 20 years, you will have paid a lot of money with noth­ing to show for it. Yes, buy­ing a house comes with a lot of re­spon­si­bil­ity (rates and taxes, main­te­nance, in­sur­ance), but you can buy a house that is within your bud­get. Take your time and shop around, and you may find some­thing that you can af­ford. Re­mem­ber that when you buy in a good area, this as­set tends to ap­pre­ci­ate with time, which means later in life it will sell for more than you bought it for, strength­en­ing your fi­nan­cial in­de­pen­dence.

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