“I don’t have enough money to save.”
“I prefer to live for today.”
“It’s just too much work. I can’t be bothered.”
Do these statements sound familiar when it comes to saving for retirement? If so, it’s time to change your mental attitude right now because through this belief; you are avoiding making one of the most crucial investments of your life.
There is nothing wrong with living – and enjoying – the present, but it cannot be in spite of planning for your future. In this article, we’re going to help you break mental barriers, even if you’re not able to start saving immediately, that are holding you back from achieving financial security at retirement.
No more excuses
“I don’t have enough money to save.”
Many South Africans simply don’t have any money to dedicate to retirement savings and the global pandemic has likely made it seem like an insurmountable task; however, if you implement and stick to a budget, it can be accomplished. With an informed budget in place you can face – and pinpoint – wasteful spending; you may find that it reveals pockets of money that could be contributed to a retirement savings product, e.g. a retirement annuity (RA). If you are unsure how to start, help is available: speak to an independent financial adviser (IFA) about budget planning. He/she will help you build one tailored to your specific circumstances.
“I need to take care of my family.”
Let’s look at this barrier from a different perspective. Isn’t part of taking care of your family dependent on taking care of yourself as well? How will you be able to support them if you can’t take care of yourself? It’s admirable, and in many cases, necessary for you to take care of your children’s current needs as well as those of your parents. However, if you don’t consider and plan for your future, you’re perpetuating a cycle that can potentially affect your children.
“It’s just too much work.”
Is it, though? Think about it for a minute. It’s no more work than opening a bank account, it can be completed online, and most financial institutions have designed their website to streamline the process through easy to understand interfaces.
Break the pessimistic cycle by following these four steps
Assess your spending habits
Please do yourself a favour: download and print a three-month or six-month bank statement and review them meticulously. Highlight transactions that fall under variable expenditure (money that you choose to spend) and ask yourself the question ‘did I really need to make that purchase?’ Calculate the total amount, and you’ll find that there is likely a sizeable portion that could have been invested for retirement.
Think about this: it costs more to have a premium satellite TV subscription than most minimum monthly contributions towards a retirement annuity. Most financial services companies offer investment minimums from only R500 per month. It puts things into perspective, doesn’t it?
Learn how to create a budget
This will assist in understanding how much of your income needs to go to fixed expenses (rent; mortgage; insurance; medical aid scheme, etc.) and how much money forms your variable expenditure. Now, it’s time to create a budget that prioritises where your money goes; contributing to retirement should be at the top of your list.
Factor in ‘cost of living’ increases
Length of time and compound interest are your best friends when growing your money. However, the value of your money can decrease over time, meaning you may not be able to buy as much with the same amount of Rands, as the prices of services and goods increase. This is known as inflation. Salary increases that meet with price inflation allow you to maintain a fixed standard of living over time. However, COVID-19 has had a devastating effect on the country’s economy; employees have been forced to take salary cuts or, in the worst case, become unemployed.
Now, for many, the rate of inflation has exceeded their take-home income, causing massive financial strain. Unfortunately, the cost of living hasn’t decreased, making it necessary for people to be much more financially frugal. It’s more important than ever to breakdown your ‘cost of living’ expenses when creating your budget so that there is no needless spending and any extra money can be contributed towards your retirement.
Reflect on your financial circumstances
By now, you should have a definite idea of how much money you can contribute to retirement. It’s time to act and physically implement what you’ve learned. Think about how many years you have until you retire. This depends on your job, but many businesses and institutions have a mandatory retirement age – typically 65 years of age. Remember, contributions to a retirement annuity can only be accessed from 55 years of age. So, you need to consider whether or not you may need to access your investment before you retire; if you do, you need to start saving sooner.
The time to start saving for retirement is right now. Every month that you choose to spend the money, you could contribute to retirement only delays the date at which you’ll reach your goal. Recognising your financial future is based on what you do today is a discipline that will benefit you immensely.
As mentioned earlier, if putting a plan in place and choosing investments is daunting, an independent financial adviser (IFA) can help you examine and amend your monthly expenditure to help you make room for retirement saving.