You’ve just ran into an unexpected sum of money. Your bank account is smiling and so are you. But, don’t be reckless. Consider these insightful tips first.
Done all of the above? Great!
Check out Jason Garner’s example on how you can make your money grow:
“If you invest R10 000 into a savings account, with an interest rate of 5% per year, you would have earned approximately R500 in interest after one year.
“If you had rather paid R10 000 into your credit card bill that has an interest rate of 16%, you would have saved yourself R1 600 in interest. This ultimately means that by not paying off your debt with the highest interest rate, you have spent an extra R1 100 during the year which could have been avoided with prior planning. If you then took the R1 100 interest savings and used this to pay off further debt, or alternatively committed this additional saving into an investment strategy, suddenly you find yourself in a significantly better financial position.
Our Olympic heroes recently found themselves thousands of Rands richer, when they were given prize money for bringing home the medals. According to Jason, they have a range of options when it comes to investing.
“If we take the recent Olympics winner’s prize money of R400 000, they are faced with a myriad of investment options which includes saving the funds in a bank account or investing the funds in a longer term investment strategy, this could vary depending on each person. However the one issue all consumers will face at some point in the future is retirement. The benefits of saving as much as we can, as early as we can, are huge.
“If a 21 year old gold medal Olympian, who won R400 000, invests R10 000 of the winnings in a retirement annuity that returns 10%, net of all fees and costs, for a period of 44 years, they would have saved about R668 000 by the time they retire at the age of 65.
“If the same Olympian spends their 2012 winnings without investing and instead decides to invest R10 000 four years later when he wins at the next Olympics, the total investment at retirement will only be worth about R456 000. Even though four years is not a long time, the difference in savings equals to R212 000.”
Jason says that these examples highlight that being committed to investing earlier makes a significant difference to the probability of achieving longer term goals and aspirations.