The article by Esther Mukumbo “Can you budget your way out of poverty?” (Your Money, May 5-May 11) refers. While it’s probably a good idea to save money for short-term goals, unfortunately her figures conveniently forget one vital aspect: net present value.
Telling us we’ll turn a R100 a month investment at 8% interest into R18,128 in 10 years’ time is fine in 2032’s money. Unfortunately, in today’s rands (which we should be comparing it with) it’s a lot less.
At an annual inflation rate of, say, 5%, the value in today’s terms is only about R11,000. Considering you’d have put in (fair enough, in devalued rands) the grand total of R12,000 (10 years x 12 months x R100) to get to that figure seems a bit of a waste to me.
Maybe your R100 a month should rather be spent on a better investment? Like an accounting course to start off with, to understand why banks and insurance companies are so willing to take your money, effectively under false pretences.
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