Building wealth: A beginner�s guide to financial security
Correspondent | Tuesday August 2, 2016 15:11
This is untrue. Saving and investing are rather straight-forward practices, requiring strong self-discipline, basic knowledge of the appropriate banking solutions and the will to spare whatever money you can every month.
By handling your finances responsibly and sensibly, you can create substantial wealth over a 20 year period by saving P1,000 per month. Or, for those of you just starting out, you could afford to buy your own home at 28. This is achievable by anyone earning a salary, but there are a few rules to follow:
Have a defined plan for your money
“Deciding up front what you will be spending your money on is essential if you want to invest and build wealth,” says Stanbic Bank Botswana Head of Private Banking, Sabrina Mahlalela. “Avoid spending too much on disposable and depreciating possessions, or you may miss out on affording the important things, such as your own home, or an emergency fund that will buy you peace of mind.”
Start by building a ‘snapshot’ of your monthly costs and income. Be critical of your needs versus what you want. It’s the ‘wants’ that can lead to increased spending and financial mismanagement.
Stick to your monthly budget plan as this is what will keep you in check of how you are using your hard earned money.
Avoid temptation
The urge to buy all “that the retail world has to offer” is alluring to most of us. The sheer volume of choice is overwhelming, but try to step off the consumer treadmill and look a bit further than the designer sunglasses.
What do you want more? To look cool for a few weeks, or to live cool for the rest of your life? If you were offered a trolley full of designer items or a new townhouse, which would you choose? Of course it would be the townhouse, so keep in mind that frittering away cash on instant gratification is saying goodbye to a better lifestyle in the future.
Understand the difference between investing and saving
Saving is for short-term objectives, such as a new laptop or a holiday. Investing is saving for long-term plans and commitments, such as retirement. While retirement and the world of investing may seem so far in the future that they don’t need your immediate attention, the sooner you begin to invest; the wealthier you will be.
Time is your best friend
“A young person has ten to fifteen years to save for a child’s college costs, and probably forty to sixty years to build wealth for their future,” says Mrs. Mahlalela. “By investing a little each month now, you won’t have to invest as much as you would if you were to wait another 10 or 20 years to start.”
Take advantage of company retirement plans
If your company offers a contributory pension plan take it and make sure you do not limit your contribution to the minimum required. Chances are, the Employer will match your contributions to your plan. You also get a tax break of 27.5% until you draw your pension. So if you earn P10,000 per month, you can save P2,750 without being taxed on that portion.
Moreover, a company employee benefits will force you to save, because the money is deducted off your salary. If you change jobs, you can reinvest your money into a Preservation fund without being taxed. Avoid spending the money you have accumulated if you change jobs. Not only will you pay tax, but you will effectively be spending your retirement investment ahead of time.
Insurance Companies such as Liberty also offer Pension Plans and you can take one to augment the pension plan offered by your employer.Life policies to secure your future and that of your loved ones are affordable if taken at an earlier time in ones life.
“Saving and investing work best if they are part of a long-term life strategy, not just something you do from time to time, or when you feel rich,” says Mrs. Mahlalela. “If you make this a habit or way of life , you will secure a stable and prosperous future.”
Stanbic Bank Botswana