Creating a savings and investment plan

Maya Fisher-French
2018-03-04 14:57
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While getting out of debt is a priority for many of our Money Makeover contestants, they also need to save and invest for the future. Any financial plan should have the following elements:

An emergency fund

This protects you against unexpected life events so that you do not have to tap into credit lines you are trying to pay off. Vonne, departure controller and new dad, opened a seven-day notice account, into which he contributes R500 a month.

“We didn’t want him to have immediate access to the money, but it also has to be available at short notice,” says his adviser Maria Mogomotsi.

READ: Strategies to invest for the long term

A contingency/short-term fund

This is for short-term, planned expenses such as next year’s school fees, a holiday or replacing a car.

By planning and saving, you avoid the trap of borrowing money to pay for those goals. Human resources manager Zamokuhle has been keeping his wedding funds in a fixed deposit account to earn maximum interest, as he knows the date he will need the money and he cannot access it before then.

Police Brigadier Buti uses the Absa Depositor Plus account for his daughter’s university registration fees.

“Depositor Plus allows you to park excess funds, or build an investment balance if you require instant access to your money, while earning a competitive interest rate,” says his adviser Matt Rudman.

This account can be used for an emergency fund or for a specific goal.

READ: How to financially prepare for a life shock

Education fund/medium-term plan

If you have children, you need to be putting money away for their education, or you may have some other goal in three to 10 years.

For example, bookkeeper Monique puts money into an education protector fund each month. This provides savings and a risk benefit, which means her children’s education is paid for should something happen to her.

Buti invests his medium-term savings into a diversified fund spread across several unit trust funds, providing a moderate risk profile.

Retirement

You only have about 480 pay cheques from the time you start working at age 25 to the time you retire at 65. As you will live until about 85, you will need to fund an income for the next 240 months, at least. The only way to reach that is to start early and select the correct investment strategy.

Vonne has increased his pension contribution with his employer, which is cost-effective and more difficult to cancel than a retirement annuity, so it gives him the discipline to keep investing.

Although security manager Howard is building a property portfolio, he is maintaining his R1 513 a month retirement annuity contributions because one’s own business is a higher risk and he needs to ensure he has a diversified strategy for retirement.

READ: How to prepare for semiretirement 

One step at a time

If you cannot commit to all of them immediately, Mmabatho’s adviser Gerrit de Jong says he generally recommends starting with an emergency savings account, putting money away for six months and then moving on to a medium-term investment plan for things such as school fees. The next year, you can add on the retirement savings, depending on personal needs.

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