Real wealth and financial freedom requires discipline over many years. Picture: ISTOCK
Real wealth and financial freedom requires discipline over many years. Picture: ISTOCK

One of the surest ways to create long-term wealth is through investing. If we do not invest wisely and consistently, we will end up like the majority of South Africans who do not have enough money for retirement.

Young people understand this but far too often they say retirement is far away and that there is still plenty of time to make real money and save for the golden years.

Retirement isn’t a date, it is a phase of life, and advancements in health and wellness mean that people can live well into their 80s and 90s.

Retiring at 60 means that you may need to save enough money to sustain your living for another possible 20 or 30 years. Here's a simple thought experiment with a profound lesson. Do you have enough money now to last a month without working? Two maybe, or possibly six? Imagine 240 months — if you should die at 80. That's a lot of months.

2018 Financial Planner of the Year Janet Hugo. Picture: Supplied.
2018 Financial Planner of the Year Janet Hugo. Picture: Supplied.

Then there’s the whole concept of wealth. Do you want to leave something behind for your children? Do you want to be the one who started real, intergenerational wealth in your family? Perhaps you have been lucky enough to inherit something that could give you a head start in life, but most South Africans don’t. 

If you can start saving and investing, there really is no honest reason for you not to do so right now — not even the latest Gucci bag or R1,000 bottle of whiskey.

So, who are the best people to speak to about investing and financial advice?

The answer is certified financial planners and Money has gained exclusive access to Janet Hugo, the 2018 Financial Planner of the Year to share some nuggets. Hugo gives three golden tips for how to get started on your journey to investing and financial freedom.

Use debt wisely

“The very first way to becoming a successful investor is to be anti-debt. There’s good and bad debt, for example, a loan from a bank to purchase a home is a good debt as you make contributions towards an asset — your home — that grows in value and provides you and your family with a sense of security,” explains Hugo.

So then, what is bad debt? This may not sound pretty for the “now” generation who wants instant gratification, but we need to face the reality and act to make inroads.  “An example of bad debt is the number of clothing accounts and the amount(s) you may owe on them. The interest rates on these accounts are usually very high, and the payments should rather be going towards investing for retirement.

Credit card debt also becomes bad when you don’t pay the full amount off every month, says Hugo. 

Become a successful investor and plan for your retirement

If you are in a full-time job, you may have to contribute to a pension or provident fund, which is a great way of starting to invest. Don’t see that deduction from your salary as a burden. We are all so obsessed with "net". Consider this the "safety net".

“The way it works is the managers of these funds purchase an array of investments, which could include shares, property, bonds and cash,” explains Hugo. “The usual contribution amount is 15% of your salary, which sets a great standard for earning financial freedom in retirement.”  

If you’re not contributing towards a pension or provident fund, Hugo says you should get your own retirement plan going by investing at least 15% of your salary each month towards a retirement annuity.

“These investments are underpinned by unit trusts, which are pools of money that expert fund managers use to purchase different investments. The selection of unit trusts for retirement annuities is regulated so that the allocation to the different investments are safe and suitable for long-term growth.”

Hugo says that it is important not to be intimidated. “This may all sound a bit scary, but it’s not. Retirement annuities are offered by many banks as well as asset management companies, which employ qualified people to help you. You can also set them up easily online.”

There is a tax advantage too. “One of the great things about contributing towards retirement funds is that it’s tax efficient in that there’s no tax within the fund, which speeds up the growth. The contributions are also tax deductible, which usually means you’ll get a tax refund from the SA Revenue Service (SARS), which frees up further money to invest. Regulation caps contributions towards retirement savings at 27% of your salary or R350,000 per year.”

Manage the risk in your life 

It’s an old cliché but always expect the unexpected. While we do everything in our power to have a smooth life, things can go wrong at any moment — whether it is an accident or unexpected medical costs.  

“We do need to plan for unexpected and unpleasant events. A good way to start this process is to set up an emergency fund for unanticipated medical expenses or an unplanned trip to another city or town to attend a funeral. You can do this by setting up an additional bank account and arrange ongoing contributions to this emergency account which you can easily access when times are tough,” says Hugo.  

When the amount in this emergency account reaches six months of your salary, you can invest the excess directly into unit trusts. Hugo advises that you get some help to ensure that you select the correct type of unit trust that aligns with a life goal, “such as investing for the deposit for your first home”. 

“If you have family or relatives who depend on you financially, it’s also very advisable to take out life assurance which pays out a sum of money to your dependents should you pass away. The contributions towards these policies are usually very affordable if you get them going when you’re young, fit and healthy,” she says.  

Look after yourself

Hugo leaves us with one last piece of advice that at first glance appears unusual or surprising, but a piece of advice that is invaluable. Start this one today.

“There’s no point to becoming a successful investor if you don’t embrace wellness on all fronts, which would allow you to enjoy your life.  Look after yourself physically, invest time (and possibly money) in continuous education and work on maintaining or mending the relationships that matter most.”