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Here’s hoping you had a delightful festive season and a superb start to the new year. As we slowly start getting back to our regular routine, many are going to fall into the trap of making promises they cannot keep.
Yes, the hateful New Year’s resolution. The celebration and the anticipation of a new year makes people do silly things. In the heat of the moment, we make empty promises. To be healthier, take up a hobby, lose weight.
More often than not, these resolutions become a fixation for the first week or two in January. Sometimes, they catch a glimmer of February on the horizon. But most die before the 20th.
I abhor them – partly because I am hopeless at keeping resolutions. Just because the year has ticked over doesn’t mean I’m going to lose that weight or take up cross-country running.
I prefer sitting back in the last days of the year to set goals for myself. Really think about it. Not just spout off any generic, garbage goal as the second hand makes its way toward the 12.
There are a number of things on the list for 2021. But the most important one to me – from a personal finance perspective, at least – is tracking my spending.
Now, I’m no spendthrift. If I can’t afford something, so be it. I work in a budget and thankfully, have never gone over. However, I am truly terrible at tracking my spending. Especially the small purchases. A R20 here. A R50 there. Slowly, these amounts start to add up, and after a brief moment of head-scratching, I realise these small amounts have quietly snuck up on me to create a substantial cumulative total.
It’s annoying for two reasons. Firstly, it’s all things I don’t necessarily need. Secondly, it’s money that could have been utilised in a better way. It may be a bit laborious and dull, tracking each and every penny I spend. But I think it may be worth it. Learning about my spending habits may alert me to an area in my life where I’m spending too much and can perhaps cut down.
Money that could be used to expand my share portfolio.
Last week, I asked you to send me your finance and investment queries. Here, Johan Steyn, CFA* of Stellenbosch University, shares his expert advice by providing answers to your questions.
G. Jacobs asked,
I recently started my first permanent job. I’m paying off my student loan and have monthly instalments to pay on the car I purchased a few months ago. I’ve been told I should already be contributing to a retirement annuity. Apart from my company pension fund contributions, where should I be putting money? And how much can I contribute without being broke for the rest of the month?
It is a good idea to start contributing to a retirement annuity, especially if your company pension fund contributions are small, or you want to diversify your retirement savings. These contributions are tax deductible, which means you are effectively paying less tax and saving more for retirement. However, you need to balance it out with your current living expense needs, which includes paying off expensive debt. Start by drawing up a personal budget, listing your income and all your expenses. This way you will get a good sense of how much you are able to allocate to savings and investments. One thing to remember is that retirement savings, generally, will only be accessible once you are 65, so for other investment goals you may need to consider investment vehicles other than an RA. A tax free savings account is one way to make sure your investment returns are tax efficient.
What is the difference between share investments and a unit trust? Which one is better for someone who is starting out?
A unit trust is an investment fund where capital from many investors are pooled together and managed collectively by a professional fund manager. The benefits typically include low costs through economies of scale, and instant diversification. However, there is usually a management fee involved which will detract from net investment returns. A financial advisor can help you navigate the various options, as well the admin necessary to open the accounts. But this will come at an additional cost. In a brokerage account, where you invest in shares, you will need to make your own investment decisions, which includes attempting to achieve an appropriate level of diversification. This could be difficult with small amounts and trading one share at a time. Fortunately, there are low-cost ways to get started. EasyEquities is a cheap and easy way to take control of your investments and do it yourself. On their platform it is possible to invest in exchange traded funds that will give you low-cost diversification, even with investing small amounts.
- Johan Steyn, CFA is a lecturer in investment management, from the department of business management at Stellenbosch University. He holds a Masters in investment management and has a background in fund management.
Have a question about share investing? Write to me at [email protected].
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