Execs and entrepreneurs are often so busy building the here and now, they forget about their retirement. What have you got planned?
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There’s a big difference between living a millionaires lifestyle, and actually being a millionaire. Unfortunately, it’s a distinction that most don’t think about until they reach retirement and realise they don’t have nearly as much money in the bank as they thought they did.
Here’s the good news. Anyone can become a millionaire. It’s a just a question of whether you want to have wealth – or just to look like you do.
“There’s a big difference between the two,” says Jared Bartholomew, director of Deton Private Wealth.
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“Most people can enjoy a wealthy lifestyle if they’re willing to incur massive debt and live on credit.”
The problem is that those decisions today have far-reaching consequences in the future. “We’ve seen how destitute these types of spending practices leave apparently wealthy people in their retirement years.”
The truth about retirement
Let’s do the maths. If you want to be living off a combined monthly household income of the equivalent of R100 000 today in 30 years’ time, you need to be saving R37 000 a month.
The reality is that you’re more than likely not putting that into your RA or investment fund each month. Have you sat down and carefully done the figures.
What type of retirement do you envision? How much will you need? Do your current investment strategies meet these goals?
Bartholomew firmly believes that if you follow these eight steps, given time, patience and discipline, you will become a millionaire.
- Do a proper needs analysis. What do you want your life to look like in ten, 20 or 30 years’ time? When are you planning to retire? What’s the monthly income you’re hoping to live off when you do? What lifestyle do you want to maintain?
- Put a budget in place. Next, work out how much you need to save now to reach that goal. Here’s an important tip: Savings shouldn’t be putting away whatever’s left at the end of each month. Savings should be the first line item on your budget. After that, you can budget the rest of your income. Enforce strict discipline on yourself. Learn to not splurge on unnecessary items, and be strict with yourself. Future-you will thank you for it.
- Invest your savings. The single most important aspect of investing is to start. Recognised as one of the richest men in the world, Warren Buffet advocates ‘time in the market’ over ‘timing the market’. Research conducted by Charles Schwab Company in 2012, showed that between 1926 and 2011, a 20-year holding period never produced a negative result, even with the stock market crash. In other words, staying in it for the long run paid off, every time.
- Take advantage of the tax breaks. You aren’t taxed on retirement annuity contributions up to 15% of your salary – government wants you to save for your retirement. Take advantage; your savings are being subsidised.
- Consolidate your policies. How many old policies of a few hundred rands here and there are still active? Are you covering the same things in multiple ways as a result? This money adds up. Do a policy audit and consolidate what you can.
- Don’t cash in your savings for every day-spend. This is far too common: Pension funds are cashed in to pay off a car, or a holiday, or renovations. If you leave a company and are going to move pension funds anyway, invest them in assets, whether through an investment fund or by investing in your own business. But don’t use them for daily spend – make the money work for you instead.
- Consolidate your debt. High interest rates are eating into your future prosperity. Consolidate your debt, pay it off, and start being stricter with your spending habits.
- Be disciplined. This is the single most important step to real wealth. Money that makes more money literally while you sleep takes discipline to grow. Start by putting your savings away. Decide on a figure and stick to it. And then have patience. It will grow; that’s a certainty.