Are you a part of Generation Y? Take financial advantage of these beneficial factors
1. Time
As the saying goes, compounding is the eighth wonder of the world which means the younger you start investing, the harder your money works for you. If you received an investment return of just 10% a year, your money would double every seven years and those seven years could be the difference between retiring comfortably or not.
If by the time you are 30 you have accumulated R100 000 in your retirement fund and do not cash in when changing jobs – based on a 10% per annum return – that R100 000 would have grown to R3,2 million by age 65.
If you cashed in your retirement fund when changing jobs and only accumulated R100 000 by the age of 37, you would have seven years less for your money to work for you and that same R100 000 would only be worth R1,6 million at age 65.
Starting early |
|
Starting later |
|
Age 30 |
R100 000 |
Age 30 |
- |
Age 37 |
R200 000 |
Age 37 |
R100 000 |
Age 44 |
R400 000 |
Age 44 |
R200 000 |
Age 51 |
R800 000 |
Age 51 |
R400 000 |
Age 58 |
R1,6 million |
Age 58 |
R800 000 |
Age 65 |
R3,2 million |
Age 65 |
R1,6 million |
2. Future income
At the start of your career you have the most pay cheques you will ever have ahead of you.
At the age of 25 you have 480 pay cheques until the age of 65. If your starting salary is R20 000 per month and you only ever received an inflation adjusted increase, you will be receiving around R9,6 million in today’s value over your lifetime.
Firstly, make sure you have insured your biggest asset – your future income – against disability and ill-health. Secondly, don’t waste the future – ensure that each month a portion of that pay cheque is put away for the future, so one day you don’t have to work for pay cheques.
3. Flexibility
This is the time in your life that you have flexibility and choices, before you settle down, buy a house, get a pet, get married and have children. You may change jobs several times before you find what it is you really want to do. Just make sure you don’t erode your growing wealth base at this time and use the freedom to boost your wealth creation – preserve your pension when changing jobs.
4. Acquiring phase
As flexibility moves to acquiring, this is the time when you’ll start to build up assets. You will want to buy a car and then a home. Just be sure that you understand the difference between an appreciating and a depreciating asset. A home is an appreciating asset so taking out a loan is worthwhile as the property will one day be worth more than you paid for it. A car, however, devalues the day you drive it out of the dealership. Try to buy your car with cash or, at the very least, buy one that you can pay off in a short period of time so that you have money available to invest in a home.
5. Health
You are at the healthiest you will ever be from an insurer’s point of view, so life, disability and critical illness cover can be really inexpensive. The older you get the more expensive cover becomes and if something happens to you such as a car accident or a dread disease, you may become less insurable. Take advantage of good health to lock-in lower cost insurance. |
