When in your twenties, it might seem like you have ample time to sort out your finances. But Mellony Ramalho, African Bank group executive for sales and branch network, told Bussiness Tech that in reality, waiting does make a difference.
Do you know how much you will be able to live off and how long your capital will last? Retirement may seem far away, but the earlier you start saving, the more compound interest you will accrue. “Reaching your retirement goal is predominantly reliant on three things: time, real return and contributions,” says David Cumming, wealth manager at Standard Bank.
This can be seen when comparing the investment of R5 000 per annum at age 20 until age 60, and at age 30 until age 60. Both times the interest rate is 10,75%. The investment started at age 20 results in R2 716 043 in your bank account, whereas the one started at age 30 only results in R948 604.
“It shows that by missing out on those 10 years you have actually cost yourself more than R1 767 439 in returns, even though you only skipped ten years of deposits,” Ramalho says.
Ramalho’s savvy financial tips for those looking to invest early in their life:
Money is a tool
One of the most important things to learn in your 20s is that your salary should enable you to make sound financial choices regarding saving, spending and investing. Set financial goals, both short and long term, then plan accordingly.
Retirement savings increase over time
As much as you want to live life lavishly in your 20s, saving should also be a priority. The best way that both can be done is to first gradually invest, and then sharply increase the investment amount.
Alex Whitehouse of Whitehouse Wealth Management recommends starting with just 1% of your income, then increasing the percentage gradually by 1%.
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“By the time you reach your 30s, you’ll be saving 10% of your income. By your 40s, you’ll be saving 20% of your income. And if you get a raise every year, you may not even notice the difference,” Whitehouse explains.
Slay in your lane
When you pay attention to what others are spending on, you might be pressured into keeping up appearances with money you do not have, which could result in debt. Consider minimising your debt and your expenses, while maximising savings. Ramalho advises against using your credit card to pay for everything. “Cash remains king,” he says.
Invest in yourself
Ramalho says, “Invest in your personal, professional and financial growth. Read as many books as possible, and seek advice from financial planners and actively develop your skills set.”
Reporting: Business Tech