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What should my financial priorities be?
20s: In your 20s, your focus should be on paying off any outstanding debts, such as overdraft facilities, credit card debt and study loans.
30s: In your 30s, it may be necessary to shift your financial goals towards the purchase of a house or perhaps to expansion of your family. Carefully monitor existing debts and make sure that you are making good progress in paying them off.
This is also an excellent time to join your company pension scheme or to invest in a personal retirement annuity.
Other long-term investments should also be considered at this stage.
40s: In your 40s, you should focus on saving, so acquiring a share portfolio or savings account becomes essential at this stage. At this point, all salary increases and bonuses should be seen as an opportunity to contribute more to your pension fund or savings account.
Another excellent saving method is to deposit extra funds into your mortgage or credit card account. At the current mortgage rate, this is equal to earning 10.5% (prime rate) tax free on your savings, while this rate is doubled on your credit card.
This is the decade in which you need to focus on wiping out your debt so that you can increase your monthly savings to the maximum when you are in your 50s.
50s: This is the time during which you have to decide on your exact retirement age. It must serve as a guideline for your saving strategy going forward, as this will determine the amount of effort you will need to put into reaching your retirement goals.
How can I get my spending under control?
Many people have trouble saving money and often find it impossible to make ends meet. Out of desperation, many of them feel that earning an extra income is the only way to survive. The sad fact is that most of them still struggle with saving, despite the increase in income. Start by determining the exact flow of funds into, and out of your bank account on a monthly basis.
Following a regularly updated and strict budget will certainly help you to achieve this. In the words of Warren Buffett: “If you can measure it, you can manage it.”
Once you know exactly what your spending habits look like, you can start to control them. One of the biggest culprits that keeps South Africans from saving is the fact that too many people live above their pay grades.
Buy cheaper and smarter. If, for example, you cannot afford a specific TV package, cancel it, or consider a downgrade to a cheaper package. Also avoid incurring additional debt that will ultimately only keep you from reaching your financial goals for longer.
Schalk Louw is a portfolio manager at PSG Wealth.
This is part three of the cover story that originally appeared in the 10 November edition of finweek. Buy and download the magazine here.
