Having a laudable goal is one thing, but achieving it requires an action plan and consistent hard work, writes Palesa Dube.
I was given a beautiful orchid for my birthday last year. Now, I love pot plants as much as the next person, but I unfortunately have not had much success with this particular species in the past. Put plainly, I’d say my home is where orchids come to die, or so I believed.
To my sheer delight, this particular plant seemed to buck the trend. The plant arrived with beautiful white flowers that wilted after a few months. I kept the plant in the same spot, remembering to water it as the occasion called for it. For months it looked like I was just nursing the leaves, when in the middle of winter I saw some buds starting to grow again. Lo and behold, true to its own timing, nature had done it again. As if in perfect synchronicity and just in time for spring, I’m now spoiled with a beautiful bloom of orchid flowers again.
So what did I do right this time around? My wish was to sustain this plant and see it flower time and time again. I knew my weaknesses (forgetfulness, loss of interest), and had a plan to counter them. My system helped me do what I needed to do, even when I didn’t feel like it.
I couldn’t help but draw an analogy on how we can use the same principles to tend to our financial goals. First, identify the goal but have a plan to deal with what might get in the way of you achieving it. Second, automate a system that will help you achieve your goal. Last, be consistent even when the going gets tough.
Here are a few considerations to tackle over the spring months:
September: Revisit your budget
Maintaining control of how much money you are spending and more importantly, how much you are able to keep at the end of any given month, is the real key to building wealth over time. If you drafted a budget as part of your resolutions at the beginning of the year, now is a great time to assess how you’re faring and make changes where needed. Also have an honest conversation with yourself about areas where you’re not getting it right to assess whether you need to change the goal or if a behavioural adjustment is required.
The aim is to spend within your budget as well as have enough to contribute to long-term investments as well as an emergency fund. The easiest way is to build a monthly contribution to such a fund into your budget. In fact, make it the first line item.
While you’re in your budget revisit these line items as well:
Short-term insurance to assess if it is still required and if the premiums are competitive.
Your debit orders and subscriptions; cancel what you don’t use or need.
Your debt, recommit to paying off unnecessary and expensive debt quicker.
October: Understand your employee benefits better
If you are in the fortunate position to be employed with great company benefits, take it upon yourself this month to fully understand what the scheme offers you. Often your scheme may have benefits such as a retirement fund and group-risk life and disability cover. There may be the additional benefits of an employee assistance programme, such as counselling and emotional wellbeing services, legal services, debt assistance and advisory services.
The advantage of pooling retirement and insurance products in a group scheme is that better terms and conditions can be offered, including reduced costs, largely due to economies of scale. It may be cheaper to access these benefits through an employee scheme than in your personal capacity. We often find that individuals take on additional insurance privately while unaware of the benefits already available to them through an employee benefit scheme.
Start by accessing or requesting your benefit statement through your employee benefit portal or speaking to HR to understand what’s on offer. It's then a good idea to consult with a financial planner to help you ascertain the levels of cover you need and whether you are on track with your retirement funding goals.
November: Get your retirement savings back on track
At this time of the year you are hopefully looking forward to an annual or Christmas bonus. It’s also around this time that you would be having conversations on salary adjustments. While it's good to spoil ourselves sometimes, do leave room to ensure that you are well provided for the future too.
The primary query we get from clients is whether they are on track to providing for their retirement. We advocate that you aim to provide for a retirement income of 75% of your current salary, adjusted for inflation over time. The expectation is that you should have settled all major debt such as your home loan and that your children should be self-sufficient when you retire. If you are to achieve this, here is a rule of thumb to use to assess how you’re doing so far.
[blob] After working for 10 years: 2 x your annual salary
[blob] After working for 20 years: 5 x your annual salary
[blob] After working for 30 years: 10 x your annual salary
[blob] After working for 40 years: 17 x your annual salary
If you do find that you are off track, there are a few levers you can pull:
* As a habit, allocate a part of your annual bonus towards your retirement fund.
*Use your upcoming salary increase to augment your monthly retirement contribution.
* Understand the underlying investment options in your retirement fund and consult with a financial planner if necessary to ascertain the appropriate asset allocation to help better grow your retirement savings.
All of our circumstances are different and so its well worth your while to consult a Certified Financial Planner (CFP) so that a more bespoke plan can be calculated and put in place for you.
Palesa Dube, CFP, is a Director and Wealth Manager at Wealth Creed. She is a practicing member of the Financial Planning Institute of Southern Africa.