July is Savings Month and according to the Savings Institute of South Africa, the objectives of the campaign are to promote debate around key aspects of saving and to raise awareness of the benefits of short, medium and long-term planning.
Here, the Product Head for FNB Money Management, Ester Ochse has compiled some tips to get started:
How does one start the journey to saving and investing:
- Look at your budget
This will be the first step to see where you can free up cash that can be directed to saving for an emergency or a longer-term investment. Use tools such as FNB Smart Budget on App to see where your money is going and what moves you can do to free up cash. Also, be deliberate about savings, include saving and investing as part of the needs in your budget. Prioritise saving and investing before the nice to haves like eating out and treats.
- Redirect the freed-up cash flow
Use the cash flow that you have freed up towards an account for emergency savings. This will normally be a cash investment or bank account. The great thing with this is that it can start with as little as R1. For emergency savings, look specifically for an account where you can access the funds quickly or within 7 days. You can automate these savings by adding a scheduled transfer from your bank account into your savings account every month. A nifty feature to save regularly is Bank Your Change where you can select an amount to round up after every transaction and direct this to your savings account, helping you save easily.
- Think long term
It is important that you match your investment horizon to the type of fund or solution that you are choosing. In the short term the biggest threat to your investment is volatility, in the long term the biggest threat to your wealth creation journey is inflation. For the longer term, you want to ensure that your investments aim to outperform inflation and exposure to
growth assets is the way to do it. With options that start from as little as R300 per month, there is a solution for all goals.
- Categorise your investments into timelines
Investing 0-2 years; mainly consider cash and money market investments and include your emergency savings here. You can also use this in for goals such as saving for stationery and school fees for next year or a holiday.
2 – 7 years have exposure to some growth assets such as shares and property as well as some defensive assets like cash and bonds. A good option here will be a unit trust that has exposure to these types of assets. Typical goals that can fit into this space would be education or saving for a house deposit. 7+ years this is truly long-term investing and exposure to proper growth assets is important, and so are shares and property. Unit trusts are an option as well as direct share investing. This would ideally be for retirement and long-term wealth creation.
- Avoid the too good to be a true investment scheme
If a solution promises you returns that are beyond reasonable and seems too good to be true it is best to stay clear of them. Consistent saving and investing is what will pay off in the long run. Also, when investing rather stick to reputable investment companies or authorised Financial Service Providers.
- Start Early
When starting your investment and wealth creation journey the earlier you start the better, even if it is just with small amounts. By starting earlier, you will get the benefits of compounding interest and returns, which could add up to significant amounts in the long run.
Starting the journey to investing does not need to be daunting or overwhelming. The important thing is that you start on the journey, first by building up an emergency fund and then look toward longer-term investing. Use the tools that are available to you such as Savings goals on the FNB App or the various investment options that are available to you via FNB.
Compiled by Ester Ochse, Product Head: FNB Money Management