What to do with your money
Welcome to Part 9 of the UBUKWAZI YINI, a continuation of the Life Offices Association’s ongoing national drive to make insurance easily understood by all.
THIS week, we discuss money and how to best invest it.
Last week we discussed the male factory worker and his retirement plans. We established that the male factory worker needs to plan today for his retirement.
We also found out the male factory worker must set aside for his retirement - and money is the subject of today’s discussion.
The role of money
Money is a strange thing. So many of us take it for granted, yet it is the single thing in life that buys a lifestyle. Without money, without an income, we simply can not survive.
Money becomes the starting point in the personal financial well being of the male factory worker.
Now that we earn some money, the next question is how do we spend it, save it, and most importantly how do we invest it?
From the US$800 a month that the male factory worker earns, he can set aside some for retirement, groceries, rates, electricity and more.
The male factory worker should also consider setting aside some of his money for future use. Herein lies the concept of investments.
Why invest?
As it is, the male factory worker has a number of reasons why he should invest some of his money:
1. Firstly the male factory worker has got future commitments that he needs to take care of.
His last child, Rudo, is only twoyears-old. For the next years or so, the male factory worker will have a very big financial commitment - school fees.
The male factory worker may want his daughter to go and study at one of the South African universities. As a foreign student, she will be required to make an upfront payment.
For instance, if Rudo decides to study Medicine at a South African university, her father will spend no less than R500 000 for her tuition during her six years of study.
He will also need to pay an additional R100 000 for her residence fees.
And he has to pay her fees upfront every time.
Unless the male factory worker starts investing some of the money he earns today, he will not be able to meet these financial obligations.
2. Secondly, the male factory worker needs to set aside something for retirement. We have discussed in the past why the male factory worker needs to save for retirement. The earlier the male factory worker starts to save for retirement the better.
3. Thirdly, the male factory worker might want to save money to meet a future commitment. For instance, the male factory worker’s house is not yet complete.
He believes that if he can invest some of his earnings, he will be able to raise enough in 10 years to finish the construction of his home.
4. The male factory worker has always longed to travel. He has made a commitment that he will take his wife to a well known resort such as Mauritius.
He has targeted to do that in the next 5 years. However, to be able to do that, the male factory worker must set aside some of his money towards this holiday.
5. The male factory worker is well aware that the world that we live in is full of uncertainties - and that at one point he will require large sums of money to be available for use in emergencies. For instance, the male factory worker or a member of the family might require a big outlay of cash.
If he does not set aside something and invest it to earn some interest, it means he will not be able to meet these obligations.
The male factory worker, therefore, needs to set aside an amount for contingencies.
Thank you for joining us again and be sure to read next week’s article in which we conclude our discussion as we look at investment options