If you have just started working and are receiving your first salary you are probably tempted to head to the shops. With some money in your bank account you may be excited to celebrate by buying new clothes or maybe a brand new cellphone.
But before you do any of that its important to draw up a budget. Budgeting is a little bit like exercising and eating well, something we all have to do to look after physical and financial health. If you’ve never drawn up a budget check out our tips to get started here.
The first thing that you need to budget for every month, is saving. Saving is a way of paying yourself and the earlier you start saving the more wealth you will have built up by the time you need to retire.
There are few golden rules when it comes to saving:
When saving it’s always good to have a goal to work towards. You probably have short-term goals like saving for a new cellphone and a medium term goal like saving for a car. You must also remember to put a little away each month to cover unexpected emergencies.
When you are saving for the short and medium term you can consider things like savings accounts, tax free savings accounts, money market or notice deposit accounts and things like unit trusts and endowment policies.
But often people forget to plan for their retirement. When you first start working, retirement might feel like a long-time away but that is exactly why you should save for retirement from your very first salary. The longer your savings are invested the more time it has to earn interest and grow.
Research for Sanlam’s Benchmark Study shows that we should start investing at age 23 and that we should invest 15% of our salary, instead of just 7% that most South Africans do.
The benefit of medium and long-term investments is that you can benefit from compound interest. Compound interest is interest added on to interest already earned, this is great for you as your money grows quicker. When calculating compound interest the savings provider will add the interest you earned in previous years to the total amount invested, increasing the total amount you have saved.
Sanlam’s Benchmark study suggests that to retire comfortably after working for 40 years it is estimated that you need to have saved 12 times your annual salary and the best way to do that is by investing in a retirement policy.
There are a few common options when planning to save for your retirement these include pension and provident funds as well as retirement annuities, read more about the options here.
Working out the best way to save for this can be confusing, so you should consult a financial planner for advice on the best way to invest your money to help it grow quicker. Read more about the process here.
