I get asked so much about the willingness and when to start saving. When is the right time to start or at what age should you start saving? The answer is always yesterday, but it’s not going to work, the second answer is today which is feasible, and the worst is when you hear the person just wants to do this or that and then he wants to start, but the latter person is usually busy or bluffing him or herself.
You should start saving, if possible, from childhood and keep at it until the day you want to retire, and even then, it is important that you keep saving.
What happens in practice:
The most common problem is procrastination in starting to save, go and ask grandpa and grandma and mom and dad, they will all tell you they should have started saving earlier and saved more.
It’s amazing how few people realize that they need to keep their savings out of their businesses. So many clients also come to tell how much more profit they can make by investing their savings in some business transaction rather than leaving it in their investments. These are mainly people who must continue with their businesses until the day of their death or to transfer the businesses to their children and then leave such a passive burden on their children to further take care of them.
While we are younger, we also believe that our health will never decline and that we will always remain in a position to be able to keep up with the demands that our businesses place on us. The reality is that we would all like to be in a position at one time or another to be able to enjoy our lives carefree after years of hard work.
I am going to do four calculations for people who want to retire at age 65, namely a 25-year-old, a 35-year-old, a 45-year-old and a 55-year-old person. Let’s see what happens if everyone starts with R1 000 per month and increases their contributions by 7% every year (I use 7% because that’s more or less how salaries increase annually).
You will see that time and compound interest make your savings effort much more affordable.
I also worked out how many times the capital return at age 65 is more than the total premiums invested, and the earlier you start saving the cheaper it will be to retire.
The income table for each is worked out at 5% per year which can increase each year with the consumer price index so that the capital does not become depleted.
Let’s also calculate how much a 35, 45 and 55-year-old person needs to save monthly and increase the contribution by 7% every year to receive the same return as the person who started saving at 25 years of age, so the end goal is then to save R18 008 968 over 30, 20 and 10 years respectively.
The above clearly illustrates that the best time to start saving is as soon as possible. So the sooner we start working to start saving purposefully and keep the savings away from business transactions, the better. Therefore, other funds or money should preferably be used for business transactions, preferably the banks’, there are several tax advantages in that if it is done correctly and it is cheaper in the long term.