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Cape Town - Over the last few years, there has been increasing recognition of women’s skills and many now occupy senior positions in business and government in South Africa.
With this new-found high income, is there a desire to convert high incomes to high net worth in the long-term?
There are many women in South Africa who are not efficiently and effectively facilitating that conversion due to behaviours and belief systems that handicap them in terms of taking care of their own financial affairs, according to Citadel Investment Services portfolio manager Dudu Tembo.
According to a 2012 Australian survey, high income does not imply high net worth.
In fact, the research indicates that only about 34% of households that rank in the top 10% by gross household income also rank in the top 10% by household net worth.
Unfortunately, the longer the delay in taking a decision to pursue financial independence and implementing appropriate action, the more dramatic are the likely required changes in lifestyle expectations to achieve the objective.
In agreement with the Australian research, Tembo said that the net worth measure of wealth was a better indicator of current financial independence than was household gross income.
The statistics suggest that for high income households to also become high net worth households, they need to place priority on building income sources that are not reliant on personal exertion - that is from wages and salaries - and reducing their debt.
“With some education, the consistent practice of delayed gratification and the advice of a professional financial adviser, a woman can move from a position of being cash-rich to taking care of herself in the future”, said Tembo.
Tembo outlined a few pointers to consider when making the transition from high income to high net worth:
- A lifestyle and values assessment is a good place to start. This can provide a reality check:
* How much are you earning?
* How much do you spend and on what?
* Ask yourself how much is enough. Consider identifying opportunities to be more frugal;
* Do you have any savings or investments?
* Do you have debt? Debt is a classic drain on wealth creation, both financially and psychologically;
- Make a plan to invest:
Aim to save short term at least 10% of your salary and invest at least 10% to 20% medium /long term;
* A professional financial adviser can help you understand how to do this and can provide various models to help you see what you can realistically achieve;
* Try to build an emergency reserve equivalent to about six months of expenses. This can be kept in a money market account;
* Resist the temptation to keep more than this amount as cash;
* Consider other sources of income. For instance, purchase rentable property. But be mindful not to have excessive exposure to real estate, especially relative to other investments you hold.
- Fin24
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