Are you investing or saving? The two are definitely not the same. I remember saving up for my first car many moons ago, I started working part time while still at school and saved furiously so I would have enough to buy my first car. I started at 16 and by the time I was 20 and in my second year at university, I had managed to save a whopping R1,500 (around R28,000 today) , which allowed me to buy a little second hand mini. Every month I deposited cash into my Perm Blue Book, a very popular savings tool in those pre -internet and electronic banking days. My deposit as well as interest earned was written in monthly and the system may now seem a bit archaic, but the principle of saving was no different than it is today.
I wasn’t aware of what ‘investing’ meant and frankly thought it was the same thing. But actually it isn’t and I learnt this later in life. Savings are generally short term and less risky place – like me and my Perm Blue Book which was a bank savings account. The bank told me how much interest they will pay me and I could access my money after a minimum of three years. Today there are many more options, and more flexibility, but it still works the same – if you are saving for shorter term goals (two or three years perhaps) then it best to put your money into a bank account.
I had no need for investing at age 16, but when I started working at 22, I definitely had some long term goals. This is where investing comes in – because it’s longer term, you can take more risk with your money. The decisions are a lot more complex but if you do it right, you can grow a nice stack of cash over time.
We all have lots of different long term goals – perhaps a special holiday, a deposit on a home, to be able to send your child to university one day or even your own retirement. But where to get started is the million dollar question. Many people use the default bank savings account as they know and understand how this works, but you won’t get rich putting your money in a bank account!
Investing long term means taking some risks, and the greater the risk, the greater the potential reward. Equity based investments (shares, equities or stocks) give good long term growth, sometimes with a fair amount of volatility in the short term. But if you’re investing long term, you can ride out these ups and downs. There’s stacks of choice when it comes to shares – you could buy them directly which takes a bit of know-how or access them via a unit trust of Exchange Traded Fund (EFT ) or via an investment product offered by a financial services company.
Then of course you can also invest through other fixed assets such as property. Many people have built up solid long term wealth by investing in property, and you need to be hands on to make sure your investment is managed properly.
To get started you need to identify your short and longer term goals. Start with setting up an emergency fund and then identify any other short term goals. Then look a bit longer term and set specific goals. It’ll keep you motivated. You’re now ready to start planning how to get there. Get professional advice if you need it and invest in knowledge before you invest your money. There is so much information available – read, learn and make sure that every cent you put away is working as hard as it can for you!
