Time to think differently about income and risk

RAISE YOUR INCOME: IMPROVE YOUR FORTUNES You can only cut your expenses to a point.

Afew years ago, I attended the Sanlam Summer School for Financial Journalists. Our trainer, journalist Jenny Luesby, asked us whether we would prefer to receive R100 immediately or be willing to wait a year for R109?

A 9% return wasn’t great, but it wasn’t too shabby, either. I put up my hand, along with the majority of the class. Luesby looked surprised. In Kenya, she said, almost everyone would prefer to receive R100 straight away.

The Kenyans were convinced they could turn R100 into significantly more than R109 within a year, through various business or investment ventures. Their appetite for risk was higher than ours.

Why is this relevant? Because you can only cut your expenses to a point. At some stage, you have raise your income to improve your fortunes.

So what am I proposing?

As the world’s most reluctant entrepreneur, I’m certainly not proposing that everyone start a business. But the world of work is changing. Automation is growing. People increasingly work on several projects for more than one employer at a time.

What talents or skills do you have (or can you acquire) that can help you supplement your income? A chartered accountant acquaintance makes beautiful paper flower bouquets. As an entry-level organist, I myself have been known to attract more attention than a few brides with my ‘improvisation’ of Mendelssohn’s Wedding March.

The capacity to adapt to a changing work environment will become even more important as corporates desperately cling to the outdated concept of retirement age, while their employees live 20, 30, even 40 years after retirement, often on a very small savings pot.

But what will you do if your employer no longer wants you – even before retirement? I guess you could always move to Kenya…

We also need to think differently about risk

In a lower-return environment, one has to accept that while pouring hard-earned money into a cash investment may shield you from capital losses in the short term, it’s not going to protect you from inflation in the long run. To increase your real wealth, many investors will need to accept a higher level of equity exposure.

It pains me that the most popular question during our weekly RSG personal finance show is: is my investment with bank X or asset manager Y safe?

Against the background of the Steinhoff meltdown and ongoing reports of people losing money in dubious schemes, it’s not surprising. Yet, it highlights an important point. Accepting you’ll need to embrace more volatility to meet your investment goals is extremely difficult if you have very limited savings that have to cover immediate expenses.

But if you could slowly but surely build a diversified portfolio from an additional income stream – money you don’t need to cover immediate needs – it may help with upping your risk appetite over time.