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Christmas decorations have been removed from display windows, holiday resorts and coastal towns are much quieter and 2017 has officially begun. This is also the time when most people have already compiled a list of resolutions for the New Year. “I am going to lose weight” and “I want to quit smoking” remain among the favourite resolutions every year.
The reality, however, is that without proper planning and strict discipline, your resolutions may very well turn to disappointment for yet another year.
The same focus and dedication you apply to your New Year’s resolutions should be applied to your investment strategy and savings plans. For some this may mean a dream holiday this coming December after spending the holidays at home last year, and for others it may mean something more long term, such as planning for that all-important retirement.
These days, scores of articles list steps on how to lose weight or stop smoking, and I found it quite interesting to see how these very steps can be applied to your investment resolutions for 2017.
1. Do it for the right reasons
The purpose of this step is usually to shock you. “If you don’t start paying attention to your weight immediately, you may soon have to contend with high blood pressure or high cholesterol, which can lead to heart attacks and more”, or “If you don’t stop smoking today, the probability of you contracting an array of lung diseases, including lung cancer, increases drastically”.
South Africans in general do not believe in setting aside capital over the longer term. In the article The A-Z of investments in 2016 (15 December edition), I mentioned that savings as a percentage of income currently stands at -0.4. That means that for every R100 earned monthly, the average South African earner is left with minus 40c in their pocket.
Treasury recently released some shocking statistics that showed that fewer than 10% of all South Africans will be able to retire comfortably and that 6m working South Africans have no access to an employee pension fund. If you can admit with absolute certainty that you will not be able to make ends meet with the maximum elderly government grant of R1 500 a month allocated to citizens above the age of 60, you will do well in following the steps below.
2. Set goals
Know what you need to achieve and identify specific reasons why reaching those goals will benefit you, whether it’s an estimate of costs for your next December holiday or how much you will need to retire comfortably. In most cases, it is advisable to consult a financial expert in this regard.
3. Planning to reach your goals
'This is where most resolutions fly out the window. The moment you realise that you will need to cut back on your customary Wednesday or Friday evening socials in order to lose weight or save money, such resolutions quickly become something you’d rather set aside for next year’s list.
The key to success lies therein that your plans should be realistic and your goals achievable. For some it may be impossible to start off by saving R1 000 a month in order to reach the goals you set in step 2, for example, so start with R500 instead, with the goal to increase that amount every year. Investing R1 000 a month at a growth rate of 10% a year over a period of 20 years will give you more or less the same total as investing R500 a month, with an annual investment escalation of 10%, at the same growth rate.
4. Gain some support
Don’t tackle your New Year’s resolutions alone. Involve your family and friends and make sure they are well aware of your resolutions. Of course it would be much more fun to dine out or buy some new “toys” with your friends, but those extra savings can make a huge difference to your investment’s future value. By sticking to your resolutions, you may very well inspire your friends and family to follow in your footsteps.
5. Monitor your progress
This doesn’t mean that you’re done with your savings strategy. Check your investment statements regularly in order to determine whether your investments are showing sufficient comparative growth, and more importantly, to keep track of your investment costs. A small saving in investment costs can lead to a huge boost in your investment performance over the long term.
Also ensure that you get into contact with your financial adviser at least once a year to discuss your investment strategy and any possible changes to your financial situation.
This article originally appeared in the 26 January edition of finweek. Buy and download the magazine here.
