Can you live your best life and save for the long term?

Does being a better money saver than your parents translate into wealth in the long term?

Recent studies suggest that millennials (aged 18 to 34) are good money savers compared to their elders. Last year, the 2018 Old Mutual Savings and Investment Monitor showed that just under 25% of millennials have unit trust investments versus only 2% of the older generation. It was also noted that 69% have savings in a bank account.

Short-term vs long-term investment

However, when it comes to long-term investment, only 44% were saving for retirement through an employer pension or provident fund. A possible way to help employees in this regard is for employers to choose an umbrella fund(a retirement fund with cost-effective benefits.)

Furthermore, it has been suggested that only 6% of South Africans will be in the financial situation to retire comfortably. Therefore, 94% will have to work beyond retirement age or live off a government pension.

So, while millennials may be better savers on paper, the money doesn’t seem to be aimed at long-term wealth. The problem with not prioritising the creation of wealth over the long term is that it can leave you susceptible to the real risk that inflation may cause your money to lose its buying power.

Furthermore, choosing not to save for the long term means that you’ll miss out on the full benefits of compound interest.

Why aren’t we investing?

 Several factors make saving challenging: low starting salaries and debt, such as student loans, are two of the main obstacles. Factor in the cost of living and salary increases that don’t keep up with inflation and you can see how difficult it can seem to invest – but it’s not impossible.

Thorough planning and making small sacrifices can help you develop a lifestyle that allows you to prioritise saving.

  1. “I don’t have enough money to save.”

It doesn’t matter if you earn R5000 or R50,000 per month. Spending less than you earn is the key to being able to save money. A lot of people adopt the approach of saving money that is left over at the end of the month, but it’s a good idea to save up front. Then, you can ‘live your best life possible’ with the remainder of your disposable income.

  1. “I have too many expenses.” 

A lot of millennials are the first-generation of the middle-class in their family and unlike already established middle-class, have to play asset catch-up, needing to buy assets such as cars, homes and even appliances.

If you can, it’s a good idea to stay with your family a bit longer so that you can gather everything that you need before you move into your own home.

It’s essential to be patient. The last thing that you need is having to rely on credit which due to compound interest can cause increased debt.

  1. “I have to look after my family.”

Research shows that approximately 70% of South Africans who work in major cities are either currently supporting family members or may need to in the future. It is a difficult reality, but with meticulous planning and structuring of your finances according to your needs, it can still be possible to support yourself and family members.

  1. “I don’t have access to a pension or provident fund.”

 If you’re a freelancer or entrepreneur, you can invest in a retirement annuity (RA) – you don’t need to rely on an employer. An RA is held in your name, allows you to invest in your choice of unit trusts, and runs in parallel to your working life: you can usually stop, pause or keep contributing depending on your current circumstances.

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