Everyone wants to be able to maintain and provide for present needs without having to compromise on what has been set aside for the future. Saving the recommended three to six months of living expenses is hard enough on a limited budget, let alone investing enough money for retirement.
Many people get confused between saving and investing. Both of these are acts of ‘putting away’ money, but it is important to know the difference between the two. Saving means setting aside money for later use in a safe place, such as in a bank account. Investing means taking some risk and buying assets that will ideally increase in value and provide more money than was put in, over the long term.
Looking at some of the common mistakes made when investing, James Williams, Head of Marketing for short term lender Wonga, offers a few tips on what to consider when starting an investment journey:
- Develop the right mindset
Developing the right mindset is critical when it comes to investing successfully. Decide what you want to achieve and then stick to your plan. If you make saving and investing money a habit now, you will be in a much stronger financial position down the road.
- Learn the lingo
Educate yourself around key terms such as inflation, interest rates and compounding interest. This will empower you to make smarter decisions. Make a habit of reading financial publications and websites – information is readily available and at your fingertips.
- Don’t go it alone
Don’t underestimate the risks involved when it comes to investing. Employing an authorised financial advisor who understands what investing is and specifically what you are investing in is a great start. They can take you through how the returns of your investment will be structured and what that means for you and your family in the future.
- Have a plan
This allows you to determine the outcomes of your choices. As a beginner you need know what returns to expect, how much of your personal income you are setting aside and most importantly what you intend on using your investment for. Having an investment plan allows you adjust your strategy if things don’t go quite as planned.
- Understand the risks
Every type of investment comes with its own set of risks, but the primary goal is to eventually gain from your efforts. As an investor you need to access your risk tolerance and your risk appetite. You may be satisfied with a low-risk, low-return option, where as others are willing to undergo short-term loss for long-term potential gain.
“There are different types of investment options to choose from depending on your lifestyle preferences and your financial position,” says Williams. “There is a choice of investing in property, retirement plans and the option of storing it away to a unit trust fund.”
“These choices are there to help see to your financial needs for the time being and after your retire. They are there to add value to your money in order gain more from what you would normally earn. While investing may cost you money upfront, it should make you more money than it cost you to begin with ,” he continues.
“Many people put off investing because they think it’s too complicated or that you need thousands of Rands to start. Taking the first step can be daunting, but the key to building wealth is by developing good habits – like putting away money each month. The sooner you start, the better,” he concludes.
The Wonga Money Academy, a free online financial literacy platform, unpacks easy to follow financial lessons for investing, to help customers understand their finances better and allow them to make better financial choices for the future.