The moment we start working, we learn about the need to manage our money. If we’re well advised, we learn the value of saving for retirement while in our 20s, so that our investments have enough time to appreciate over the years. If you take that advice, you’ll realise that investing is a way of life.
It’s a question of knowing which investments to add as you go through life and your needs change. It’s important that the products you choose cater to the unique needs of each stage of your life. Here are 4 steps to consider that will help you make the most of investing:
It’s a question of knowing which investments to add as you go through life and your needs change
Pay off debt faster
You pay interest on all your debts, whether it’s a student loan, personal loan, credit card, home loan or vehicle finance. The longer you take to pay debts off, the more interest you pay. If you can afford to pay more than the minimum amount on any – or all – of your debts every month, you’ll reduce the balance faster, and pay less interest in total.
There are several strategies to choose from – you could tackle your debts from smallest to largest, or largest to smallest, or the ones with the longest terms first, or those that have the highest interest rates. The method you use will
determine how much interest you save, but as long as you’re paying more than the minimum every month, you’ll definitely be saving on interest.
When your short-term debts are cleared, you can use the money you were paying on them to invest in accounts that earn you interest instead.
Set up an emergency fund
It’s essential to have an emergency fund – savings that will take care of your living expenses if disaster strikes and you lose your source of income. This fund should be large enough to take care of your living expenses for 3 to 6 months at least. If you have the means, it’s advisable to save for up to 12 months.
To build your emergency fund, set up a debit order so that the same amount is deposited into a separate savings account automatically every month. That way, monthly saving becomes a fixed expense like rent or an internet subscription, and the money isn’t lying in your current account tempting you to spend, not save.
Useful accounts for an emergency fund include MyPocket, Nedbank Electronic 32-Day Notice or JustInvest. Each one of these products allows for regular savings, and it’s easy to have access to the funds in an emergency.
Invest in property
Buying your own home to live in is indeed an investment, but it only becomes one once you have paid off your home loan completely and own the property outright. You can renovate and sell a property for more than you spent on it, which will speed up that process and help you afford a better home faster. But not everyone enjoys the flipping lifestyle, because you’re always living in a home undergoing construction. Flipping for profit also has pitfalls, so you need to take advice from experts before you try it.
Another way to invest in property is to buy a home or office space to rent out. As long as the rental you receive is more than your monthly bond payments and other costs, you’re earning a profit on that investment every month. Since the value of property usually appreciates over time, especially if you put money and effort into maintaining and upgrading it, it can be a key asset in your investment portfolio.
Property is a cornerstone of wealth creation, so be sure to include it in your investment planning. That means saving for a good deposit, so plan a strategy over 5 or 10 years – time you can spend building that deposit in one of the savings accounts mentioned above. But be sure to understand what you’re getting into when you invest in property; becoming a landlord has its own pros and cons.
Lastly, any investment portfolio needs to include tax-free savings, which are not taxed on interest, dividends or capital gains. You’re legally allowed to save up to R36,000 a year and R500,000 over your lifetime. That’s a solid nest-egg that can help supplement your retirement funds. Nedbank has a tax-free savings account, a tax-free fixed deposit account and tax-free unit trust investments for this portion of your investment plan.
These are just 4 ideas for ways to invest your money, once you have retirement investments in place – but there are many more options. A Green Finance investment adviser will be happy to take your through the products on offer, and help you determine which mix of investments best suits your circumstances and your future goals.