A first-time employee is seeking advice on how to manage his money. He writes:
I just started working this month and it’s my first job. I want to manage my finances properly by budgeting and saving.
Which way of saving could work best for me?
Kobus Engelbrecht, marketing head of Sanlam Business Market, responds:
In short, there is no best way to save. I will discuss a few options and principles, and you can then decide what will work best for you.
You mentioned budgeting: start right there. List your disposable income after all deductions - that amount of money that goes into your banking account every month. Then list all your expenses.
Here it is very important to distinguish between a need and a want. Many people don't know the difference. Here's an example: you want to go to the movies, but you need to eat.
By decreasing your wants, you can make sure that you have a surplus every month.
Having an amount of money to invest every month, no matter how small, is the start of great things for your future. Now you have to be very disciplined because you are not allowed to use this surplus amount for anything else but investing.
Educate yourself as to how the different investment vehicles work. Read about savings accounts, fixed deposits, money market accounts, unit trusts, exchange-traded funds, shares, bonds, property, insurance policies, pension and provident funds.
All of them have a place in your future at some or other time. Also find out what the minimum amounts are that you need for all these investment vehicles. Keep on reading about investments for the rest of your life.
Also keep the following in mind:
• Flexibility: that means how fast can you cash in your investment. Some are more flexible than others.
• Taxability: how tax works on every one of these investment vehicles.
• Rate of return: in other words, what you will earn on each of these investments.
• Risks: the chances that you can lose your money. Remember that risk and return go hand in hand.
The higher the risk, the higher the expected return and the opposite is also true. There are a number of other risks as well. One of these is exchange rate risk for instance. Educate yourself about risks as well.
Once “educated”, you need to formulate your strategy. That would look something like this:
You have, say, R 100 per month to invest, and you decide to put it into a savings account. After a year you would have saved R1 200 plus the interest you’ve received.
You then decide to invest this in an exchange-traded fund.
It is important to increase the amount you invest every month yearly as your income grows. As your capital increases, you can start diversifying your investments.
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
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