I’m thinking about funding my new business with the money I’ve saved...

I’m thinking about funding my new business with the money I’ve saved in my provident fund. Is this a good idea?

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Be very careful. The failure rate for new businesses is extremely high, and the number of businesses that make it past the 10 year mark are very few. This doesn’t mean you’re doomed for failure, but when starting a business using your retirement fund you have to consider your commitment to the business and what could happen in the event that it doesn’t work out.

Johan Gouws, head of multi-management at Absa has this to say about using provident funds as capex: “It can be a good idea provided that your business can provide you with a salary and is productive enough to keep you in the lifestyle you’re comfortable with.”

If you’re starting your business young, make sure that you allocate part of your salary to retirement. If you’re starting late, make absolutely sure you have no prior debts and that your business can provide you with the same income (with inflation) in retirement you’d get if you continued with your provident fund.

Retirement planning is extremely important and with statistics that reveal only 1% of people will retire wealthy, 5% will retire comfortably, 54% retiring with below average incomes and 16% who will have to remain working, you need to work the numbers carefully.

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