Small shift, big impact

SAVE, INVEST AND FINANCIAL HEALTH WILL COME

Small lifestyle changes can have a significant impact on your wellbeing, and your chances of leading a long, healthy life. Taking steps such as giving up smoking, eating more healthy food, or getting regular exercise are all well recognised as effective ways to live longer.

This is great news, but there is a drawback. Living longer means that you’re probably in for a longer retirement – and that means you will need to save more money.

Why is saving more so important? Because, thanks to inflation, even the little pleasures of life can become problematically expensive after retirement.

Take, for example, the cup of coffee you buy daily for R18. After a year, you will have spent R6 570. After 30 years, the total has reached R197 100 – but it doesn’t end there. Once you take inflation into account (assuming it’s about 6% a year) your coffee habit will have cost you in the region of R519 412. That’s more than half a million rand, just for coffee.

The point is not that you shouldn’t make the healthy lifestyle changes for fear of living longer. Rather, when it comes to investing, just as in the case of personal wellbeing, small lifestyle changes can make a big difference to later financial fitness.

If you reverse the example above, and invest R18 each day, it could have a major impact on your future finances (as long as return on investment outweighs inflation).

To illustrate just how effective this is, imagine that tonight you’re considering heading to a good restaurant for something delicious and a good bottle of wine. However, instead you decide to invest the money your meal would have cost. Let’s say that eating at home saves you R500, which you invest for a return of 12% per year, while inflation stays at a constant 6%.

After 20 years, having given up just that one gourmet experience will have netted you a nominal amount of R4 306, or R1 513 in today’s terms. In other words, it will have tripled in value. After 30 years, it will reach a nominal amount of R13 375, or R2 709 in today’s terms and after 40 years, R41 541, or R4 852 in today’s terms.

So your investment will be worth more than nine times its original value, meaning that giv- ing up one restaurant meal will have saved you enough for nine sessions of dining out. Similarly, if you’ve quit smoking, or cut down on alcohol, investing the money this saves you could grow to become a substantial amount.

Small lifestyle changes, big impact: this maxim applies, regardless of the long term goal you’re saving for – it doesn’t have to be retirement. Starting an account for your children when they’re born, and making regular investments, could ensure they are able to afford a great tertiary education – or, if they leave the money alone for longer – a very healthy sum later in life.

I always say the best time to plant a tree was 20 years ago. The next best time is today. This is the same for saving – so start small, save big – and look forward to a future of financial wellbeing.

Jeanette Marais is CEO of Momentum Investments