Most people love the feeling of saving and achieving returns on their money, but this does not necessarily mean that they will have financial freedom when they retire
Do you ever ask yourself if you’re saving enough to live the lifestyle you want in retirement and at what age you’ll be able to retire? Do you know how much you will be able to live off and how long your capital will last? If you want a strong handle on whether you’re on the correct path to living the lifestyle you want in retirement then lifestyle financial planning (LFP) is for you.
LFP is a goal-based investment plan used by certain financial planners to help clients achieve their investment goals and objectives. A client tells the planner at what age they want to retire and the monthly income they’d like to live off (in today’s money).
This monthly amount is usually based on their current expenditure, but takes into consideration that in retirement large outflows such as mortgage repayments will probably no longer be there. The model uses inflation to forecast this figure to retirement age, creating an investment goal.
How do you reach your retirement goal?
Reaching this goal is predominantly reliant on three things: time, real return and contributions.
- How many years can you invest for? The longer the period of time, the greater the compounding effect in your portfolio.
- What real return (return above inflation) can we achieve? The higher the real return, the quicker your money will grow in real terms. Unfortunately with a greater real return comes greater risk, so this needs to be balanced and understood correctly when speaking with your financial planner.
- How much are you able to contribute? Quite obviously, the more you save now, the more you’ll have in retirement.
All three of these factors play a large role and need to be taken into careful consideration, as they will ultimately determine whether or not you achieve your investment goal. Arguably one of the most important of these factors is time.
Is time on your side?
A person who has limited years to invest and wants to live off a significant amount in retirement is unlikely to achieve their goal, so the key is to set up a financial plan early in life.
Let’s take two simple examples to illustrate the effect that time has on your financial plan. Tom is 21 years old and is able to save R1 000 per month. He continues saving R1 000 pm until he retires at age 65 and this contribution escalates by 6% every year. He was able to achieve an annual return of 12% on his investment (if we assume the inflation rate to be 6% then this equates to a 6% real return).
Tom’s aim is to live off R20 000 per month after tax when he retires (in today’s money). Based on this scenario, LFP can show Tom that he will be able to achieve this lifestyle for 15 years after he retires. His capital will run out at age 80.
Now let’s take Xolisa, age 35. Xolisa enjoyed spending his money in his twenties and early thirties and has only now started to think about saving for retirement. Xolisa has the exact same retirement lifestyle objectives as Tom and can also only save R1 000 per month, escalating annually by 6%. He also achieves a 12% return (6% real return) on his investment. By using LFP, Xolisa can see that he will only be able to live the lifestyle he wants for 4 years after retirement age. His capital will be depleted by age 69.
By starting his retirement plan 14 years after Tom, Xolisa has drastically decreased the amount he can live off after he stops working. For Xolisa to make up for the 14 years of not saving he will either need to retire later, live off less in retirement, start saving significantly more now or take more risk on his money by targeting a higher return.
Keep revising your plan
LFP is not set in stone. It can be revisited over the years and, as your circumstances change, your portfolio can be adapted accordingly. By following a strategic real return investment plan LFP allows you, at any point in your life, to be aware of whether you are on track to achieving your retirement goals or not.
There are people who save their entire working life believing that they are saving towards a lavish retirement, only to get there and find out that they can only afford that lifestyle for a few years. Similarly, you might find someone who is saving too much towards their retirement and would actually be able to cut down on their monthly contributions and live a more comfortable life now.
(Infographic) The Financial Advice Millennials And Gen Zers Want To Know
Having a grasp on your financials is tricky, but it’s crucial if you want to be successful. And that starts with getting the right advice.
Whether it’s saving for retirement or paying off credit card debt, money management can be a challenge. Of course, different people have different concerns – and that often comes with age. While a 60-something baby boomer might be organising their savings for retirement, your 20-something millennial might be focused on paying off student loans.
In a recent study, financial intelligence company Comet surveyed more than 1 000 people to uncover the top financial concerns of various age groups, as well as the financial advice millennials and Gen Zers want to know and what they hear instead.
Overall, saving for retirement was the top concern across all age groups, with saving for an emergency and affording monthly bills following in second and third. However, it’s no wonder these are some of the most pressing worries – according to the research, 23 percent of people admit they don’t have a savings account, and 43 percent reported not being on track towards their retirement goals. Perhaps that’s because they didn’t hear the right advice growing up. At least that might be the case for Gen Zers and millennials.
According to the research, these young people want to learn things such as how the stock market works, how to manage an investment portfolio, how to invest in real estate and how to build credit. Instead, they’re simply told how to create a budget, save for retirement and pay credit card bills in full every month.
Having a grasp on your financials is tricky, but it’s crucial if you want to be successful and comfortable. To learn more, check out Comet’s infographic below.
This article was originally posted here on Entrepreneur.com.
14 Ways To Make Quick Cash On The Side
If you need money quickly, here are some solid ideas.
Need to make some fast money on the side, whether it’s to pay off a credit card or to make your rent?
Keep in mind, making quick side cash isn’t about making a lot of money or getting rich. It’s about getting a shot of capital to help tide you over and put something extra in your pocket. However, some of these side-income ideas can build up your wealth over time. There’s many ways to accomplish this: By participating in the gig economy, the sharing economy, online sales networks, passive income techniques and more.
If you’re looking to make extra money in a relatively short period of time, check out these 14 slides.
Take Advantage Of Financial Democracy Made Possible By The New Stock Exchanges
Why should financial democracy matter to entrepreneurs?
Because it creates a society able to afford products and services. Without it, even the innovative products and services that are entrepreneurs’ bread and butter will fail.
What is financial democracy, exactly?
It’s both the right and the ability of the (wo)man in the street and business people to make the decisions that affect their financial circumstances.
Financial democracy does not automatically follow political democracy. For almost 25 years after South Africa’s political transformation, the exclusiveness of our financial markets continued to deprive the vast majority of South Africans of the means to invest, save, and build wealth. South Africa has, therefore, never developed a retail stock exchange environment. So, it has deprived the majority of small and medium sized business of access to capital.
For entrepreneurs to truly flourish, they need a mechanism that easily and seamlessly connects the investor pool with every size of business. And, they need affordable ways to enter both the retail and institutional market.
In short, they need stock exchanges. Ones on which listing takes weeks rather than years, doesn’t break the bank for listing fees, and provides the shortest route to the largest possible potential investor base.
That’s not been possible in the stock exchange monopoly that existed for six decades. Now, it is.
We now have four new stock exchanges. The resulting competitive environment will significantly reduce the cost of listing – and the cost for investors of buying and selling shares.
Instead of restricting share trading to people or organisations who already have tens of thousands of rands to invest or millions to spend on listing, by licensing four new stock exchanges, the Financial Services Conduct Authority (FSCA, formerly the FSB) has recognised that most financial decisions do not call for high levels of education.
Most people know how to spend their own grocery money. Most know that it’s better to keep their R1 000 monthly income in a coffee jar than spend R50 of it on bank account fees. People who can barely read and write are immensely skillful at manipulating air time deals to their advantage.
There is significant financial savvy in all social strata.
In the same way, although the mechanics of bookkeeping and accounting may be unfamiliar territory to many entrepreneurs, most have a clear understanding of the difference between profit and loss.
The FSCA has therefore enabled democratisation of the financial markets by enabling the broadest possible spectrum of entrepreneurs and investors to use stock exchanges to participate in and contribute to the economy – on their own rather than prescriptive terms.
How do you take strategic advantage of this democratisation?
- Base your business strategy on people’s instinct for making decisions in their own best interests. Trust financial decentralisation, such as one sees in crowd funding and in digital environments such as block chain, where people would far rather trust one another than institutions and governments. This is democracy innately at work in the financial environment and it’s accelerating organically as digital technologies give people more means and the confidence to help themselves – to information and opportunities. Ride the wave.
- Tap into people’s desire to innovate. Consumer organisations have proved that letting people interactively help them develop products is a powerful growth engine. Apply the principle by letting people grow your business by buying shares in it, giving you capital and themselves a platform on which to build wealth.
- Remember, the ultimate loyalty reward is equity.
Your financial democracy business plan
Look to list on an entrepreneurial stock exchange; one that was founded by entrepreneurs on entrepreneurial principles.
That means: A stock exchange that is already built on financial democracy and decentralisation. One that has, at its core, a single operational concept that keeps things simple for you, automatically gives you an immediate competitive advantage, and, ensures that no matter what your business needs in terms of attracting capital, the exchange can provide all the options in the same, consistent way.
What does such an exchange look like?
It has fintech capabilities. So:
It slashes your listing costs. It achieves this, among other things, by enabling you to populate an electronic prospectus, demonstrating your financial viability, and self publish.
It gives you control by having the granularity and agility to impose relevant governance right down to the individual investor. You get to decide the types and quantities of investors you want to attract. This also enables you to achieve black economic empowerment in perpetuity.
It leads the world by clearing and settling trades in T+0. No-one in the value chain has to hold large sums of money for days following a transaction. Small transactions become profitable. Investors don’t have to risk their life savings on a single large trade. A retail market is opened. An investment and savings culture is entrenched. The economy expands. Your business grows steadily.
It enables anywhere, any time trading via a mobile app that allows investors to see share value in real time. See economy expansion point above.
It integrates processes and procedures, simplifying them and ensuring rapid onboarding of issuers and, therefore, speed to market with new concepts and alignment with the digital economy.
It operates a principles-based regime. So:
It treats you, as an executive, with respect. It’s not prescriptive. It does not insist on excessive oversight, allowing the Companies Act to guide you to sustainability.
It does not attempt to squeeze your company into a pre-defined business or listings format. It recognises and works with your uniqueness.
It obviates the need for expensive specialist listings advisors.
It focuses on financial inclusion and access. So:
Shares can be bought and sold for no more than R1 000. See economy building point above.
The new world of stock exchanges is integrated, synergistic, holistic, organic, self-fulfilling
Decentralisation of financial control, democratisation of opportunity leads to a whole new economy. One in which, for instance, a taxi operator can finance a minibus through a company in which his purchase gives him shares. A single purchase gives him two benefits: a vehicle on which to found his business and a longer-term investment in shares that he can trade. The funding company gains liquidity through access to a wider base of investors while being able to control who buys and sells and the conditions on which trading takes place. Increasing black equity in business becomes an organic, natural, self-perpetuating process.
Everyone wins in a decentralised, democratised financial market. And it’s the stock exchanges that drive the process.
As an entrepreneur, can you afford to ignore the acceleration that listing could give your business growth?
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