Mark Corbett, CEO of Century Property, built his dreams through property. Simon Brown is a trader and market trainer. Both understand what it takes to start small and slowly build up a portfolio.
Both Corbett and Brown offer valuable tips on how to create savings where previously there didn’t seem to be scope. They agree an investment portfolio built on a bedrock of debt is a castle made of sand. The day will inevitably come when you need to liquidate your portfolio to pay debt, and usually you will have to liquidate at exactly the wrong moment, when markets are tumbling.
We all have dreams (and hopefully they go beyond the mere acquisition of material possessions) and these too are not built on a foundation of debt. Many people think their investments are their savings. They are not. Corbett is not alone in saying that you should have three to six months of expenses covered, and put away in a fixed-term account where it is very difficult to get at in a hurry. Only then can you look at building a sound investment portfolio.
Says Brown: “Check your last few months’ bank records and work out where you’re spending your money. If you seem to have lots of unaccounted-for expenses start a money journal in which you record every expense for a couple of months. Now you know that the coffee you buy every day at work adds up to over R3 000 a year.
“What you need to get to is a situation where your income is more than your expenses so that you can invest the difference. And if your comment is you can’t afford to save money then you’re doing it the wrong way around. Most people spend and then save – you need to save and then spend. Saving is basically paying the future-you and while it may mean no daily coffee for the current-you, the sacrifice will be well worth it in wealth creation.
“Once that’s done and you’re in control of your finances you will have some surplus cash every month. Initially just save the money, and only when you have a nest egg stashed away can you turn towards investing your savings.”
It’s never too early to start
“You may think you want to wait until you are earning more money to start saving, but as you get older, you’ll have more expenses,” says Sugendhree Reddy, director of personal markets at Standard Bank. “If you don’t get into the habit of saving and investing towards a sound and stable financial future from the very beginning, you’ll find it very difficult to do it later.”
To take control of your finances, you need to think of the kind of lifestyle you want to lead now, and how you will maintain that lifestyle in the years to come. Work out your short-term (one year), medium-term (three to five years) and long-term (retirement) goals, and then give careful thought to what you need to do now to achieve all of these.
Try this exercise: go on a Saturday morning to a large department store and look at people snapping up ‘bargains’ they had no intention of buying when they entered. Consider all the times you’ve done the same and how valuable those ‘bargains’ really were to your lifestyle.
If you could get back all the money wasted on unnecessary items, you’d probably have enough to start a sizeable portfolio right there. Corbett, Brown and Reddy all agree that the cornerstone of saving – and therefore an investment portfolio – is discipline.
“It’s all well and good to have a plan, but it’s even more important to stick to it. You mustn’t neglect planning for your future. You should be working towards the kind of lifestyle you want to end up with later in life,” she says.
Manage your wealth
Reddy gives five top tips on how to manage your money wisely:
Prepare a budget on a monthly basis and stick to it. The budget needs to take into account all income and expenses and include an amount for savings.
- Do not over-extend
Be wise and make sure that your expenses do not exceed your income. Always try to prioritise your expenses between what you want, and what you really need.
- Reduce the amount you buy on credit
Credit costs an enormous amount in terms of high interest rates and it commits you to having to fork out money every month for repayments. If you need to buy a large item like a new TV, try saving up rather than making unnecessary debt.
- Always look out for opportunities to boost your income
You need to ensure that you have a steady source of income, and perhaps even a plan B – such as a second source of income. Sometimes that means thinking creatively about other ways to make money. To grow your capital, you might want to improve your skills or acquire new ones.
- Save, save, save
One of the essentials on your expenses list should be a savings account. Put away even a small monthly amount.