How to have a great life and retire comfortably

I have just finished my studies and hope to start working next year. What should I do to ensure that I do not make any financial mistakes?

Save up and avoid debt

In your working life, you will earn a finite amount of money. This money will typically be spent on debt repayments, living expenses and having great experiences.

If you have the discipline to save up to buy items outright rather than to buy them on credit, you will spend less of your money on debt repayments and will have more money to spend on great experiences.

Harness the miracle of compound interest

Get into the habit of saving at least 10% of your salary. If you can arrange to have this money automatically transferred to a savings account as soon as your salary has been paid, you will get used to living on 90% of your salary. This 10% will grow over the years. The earlier you start, the more you will have in years to come.

For example, let’s assume you are earning R20,000 a month and you invest 10% of it each month in a portfolio that beats inflation by 2%. Over the years your salary will grow as you get increases and promotions, and you are able to increase this amount by 10% each year. The investment that started off as R2,000 a month will have grown to more than R51-million by the time you reach 65.

If you only start investing at the age of 30, your investment will be worth only R16.6million at 65. Even if you invest R5,000 a month from the age of 30, your investment will still be worth less than if you had invested R2,000 from the age of 20.

Age you start investing

Starting monthly

investment

Value of investment

at age 65

20

Protect your income

If something had to happen and you were unable to work, you would like to remain on the same financial trajectory.

If you work for a company, find out if it has an income protector benefit. If not, or if you work for yourself, consider taking out this type of insurance. It will, in effect, pay you your salary until you retire if you are unable to work again. It is not that expensive for young people.