Anonymous – South Africa’s spending, saving and investing habits

Let’s talk the importance of South African’s buying and saving habits…
I could talk about it forever,  one because it can get overly complicated and two because I’m passionate about it. But in summary, over my 8 years in the industry, there have been many rules of thumb to determine how one should invest to be able to retire with their current buying power and consequently not need to work after retirement or having to drastically reduce one’s level of lifestyle.

Currently, approximately 20% of one’s income must be invested for 30 years so if you earn R20 000 a month, you need to invest R4 000 per month which needs to be increased yearly with inflation, for 30 years. With the current debt crisis and the high cost of living, who can afford that? The answer has proven itself for generations, not many – the percentages from different research pools show that less than 10% of South Africa’s working force.

When do South Africa’s normally start saving?
We should start investing as soon as possible to get that compound interest machine working in our favour, Einstein referred to compound interest, as the greatest force on earth. Start with what you can afford, make some small sacrifices each month (less takeaways, cigarettes and alcohol) and remember to constantly prioritize increasing your savings at every opportunity, instead of increasing your level of lifestyle when you get a raise/bonus or pay off debt, take some of that extra budget off the table and increase your investments.

There are so many investment companies advertising these days, battling it out for our hard earned money but the one that sticks with me and I believe explains a major hurdle in S.A, is the one that talks about a runner, a dedicated person who works hard to enjoy the many benefits of their chosen sport, but the difference between success or failure is the ability to get up every day and run irrespective of challenges. So just run.

Some misconceptions when it comes to investing and saving?
Investing is a linear process, most investors compare their investments to a guaranteed investment via a bank. They struggle to grasp the concept that, in order to have a chance to beat the dreaded inflation monster, they need to be patient, invest in quality companies and ride the waves of volatility in the short to medium term, to get rewarded in the long term.

Do many South African’s live hand to mouth?`
Most definitely, in fact, most live deep in the debt trap. I am speculating a bit here, but it may be true that banks pay their bonuses off the sale of clients bad debts written off, when clients default on the high interest, short-term loans they offer non-stop. People tell me that they want to pay off their debt before investing. Theoretically, this is a logical maths sum, pay off high-interest loans before investing in what in some cases, especially in the short-term, are investments which won’t return more than those interests charged. The big but though, is that we inevitably pay off the debt, get back into the debt and continue feeding the banks’ bottom line. We then reach retirement with nothing to fall back on and are still in debt.

To keep up with the Facebook generation, we spend above our means, we have the latest cell phones , buy given cars we can’t afford with massive residuals, banks don’t want to give bonds which are secured by property, because (rightly so) they can’t easily kick you out your house and sell it to recoup the debt, they would rather give you very high interest short term loans, where on say a loan of R200 000 you need to pay R6 000p/m minimum, instead of R2 000 p/m extra on your bond, which makes it easier for them to sue you. This maths is logical and there are no hidden explanations, you pay more than you can afford and eventually drown in debt and have no money to invest.

My most successful investment clients discard what other people think, make cuts in their level of lifestyle, drive cars within their means, buy less than they can afford, and invest more than most people would be comfortable to invest, ensuring that they reap the rewards in the long term.

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