If you live month-to-month, you may not have the opportunity to invest. However, as your income grows or your expenses decrease, you could find that you have an extra R500 or R1,000 at the end of the month.
We consider how best to invest this money. But first, we look at two questions you should ask yourself before making any kind of investment.
Tip: You can invest in your retirement through JustMoney – find out more.
Questions to ask yourself before investing
Johann Rossouw, certified financial planner at Fiscal Private Client Services, says that before you start investing you should consider the following questions.
1. Do you have high-interest debt?
Have a look at any high-interest debt you may have and try to pay it off as soon as possible. This may include, for example, credit card debt or a personal loan. Start with the debt with the highest interest rate and then go down the list.
An extra R500 or R1,000 per month that’s allocated towards your debt will save you a significant amount of money in the long run, potentially much more than you would stand to gain with an investment.
2. Do you have an emergency fund?
The Covid-19 pandemic has illustrated the importance of having an emergency fund. You should build up emergency savings in a liquid (or easily accessible) interest-bearing account.
The target of your emergency fund is a personal choice, but it’s usually recommended that you accumulate enough to pay three to six months’ worth of expenses. For example, if your monthly expenses amount to R10,000, your emergency fund should have a balance of R30,000 to R60,000.
Now you are ready to invest…
Rossouw says that once you have settled your high-interest debts and built up an emergency fund, you can start investing to achieve your financial goals.
The following are the most important investments and are thus best initiated as early as possible:
Retirement fund
This should be your first thought when you have additional money. The more you can save towards your retirement while you’re young, the better your golden years will be. If you can increase (or start) your monthly contributions, you should do this without any hesitation.
Tax-Free Savings Account (TFSA)
The South African government created this option to encourage more savings in the country. You can invest up to R36,000 annually and up to R500,000 in your lifetime in a TFSA. This investment can then grow – tax-free.
How often should you invest?
Regardless of your choice of investment, Juan Olivier, co-founder and director at Muskcoin Crypto, recommends investing every month, as consistency is key to achieving significant growth.
“There are great tools to help you track your investments, including index trackers,” Olivier says. “Treat your investment as an expense and create a debit order or immediately put money away on payday.”
Rossouw recommends that you consider working with a certified financial planner who specialises in lifestyle financial planning.
“Your financial planner will be able to provide you with more information on the options available to you, the cost implications, and the effect that tax has on your portfolio,” he says.
Are you ready to invest towards your retirement or get a TFSA? Find out more.