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So what do you have to show for your blood sweat and tears?

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We work 100,000 hours in a lifetime, lets hope we have more than grey hair and zimmer frames to show for it.

We have all fantasised about what it would be like to be a squillionaire.  It must be an amazing feeling to know that you can afford to buy a small island and hire the staff to artfully fold the ends of your toilet rolls. Unfortunately most of us will have to be content with a nine-to-fiver and the only island we will be buying is the one in the middle of our driveways. Mega rich people don’t have to worry about mundane things like savings plans, insurance and retirement but we do.  The Insurance industry bleats about the fact that only 5 in 100 people will be able to retire with enough money to support themselves if they decide to retire at 65; that’s definitely cringeworthy but the good news is you do not have to be part of that statistic.

If you are starting out on a career path or if you are already pretty far down the track it is important to know that one day you will want to stop working, even if your job is to approve new bikini ranges or taste test gourmet chocolate. It does not take a degree in mathematics or a brain that mothers brag about on Facebook to understand, that in order to get off the work treadmill, you will need to have a fair amount of cash stashed. Knowing how,when and where to save,  is part of the process of staving off membership to the 101 ways to cook macaroni club.

The sad and scary truth is that people just don’t save enough. There is just way too much cool stuff  to pry the cash out of our wallets and we are pretty wimpy when it comes to self control. We are drawn to the siren call of new technology, faint-worthy handbags, fashion and golf clubs that will make us the next Ernie Else. The natural bedfellow of a consumption zombie is a credit junkie. We buy things we cant afford to impress people that really don’t give a rats derriere and we get into debt to do it. This practice is classic Dunning Kruger behviour. The Dunning Kruger psychological model is a study where the researchers discovered that a percentage, quite a large percentage of the population are so stupid that they don’t know they are stupid. More disturbingly they believe that they are actually clever, but I digress.

You can be forgiven for getting into So the first rule is that you can’t go it alone you need experts to put you on track and a commitment to a long term view of saving. However before you call an advisor there are some basics that you need to know.

Get familiar with your company pension scheme.
If my own experience is anything to go by, I can safely assume that the large majority of young adults going into their first jobs pay very little attention the “benefits” on offer when they join a company. The human resource department may hand you a pile of papers talking about group life cover, disability, defined contribution plans, retirement annuities, UIF, pensions and provident plans. This volume of information, rivaling War and Peace, usually gets shoved in a drawer with the parking tickets and the band aids.

I know it’s not the sexiest reading material in your library but ignoring how your company plan works may end up costing you money. For example, if you buy a home the bank will require you to have life insurance. You may already be paying for cover via your company, by not knowing this, you may go out and sign another policy.

A company savings plan is not enough to retire on.
Another cost of ignorance is assuming that your company savings plan will be sufficient for your retirement. Many factors affect the final payout of the fund , the fact that you are paying a regular amount every month does not guarantee financial independence. The progress of your savings should be checked at least once a year and you should solicit the help of a financial planner to advise you whether you are on track or not. It will probably be “not” so there is a good chance that you will need supplementary savings.

Don’t spend your pension.
This is by far the biggest reason why people retire with insufficient cash in their piggy banks. Lets say for example that you worked for the same company for seven years, and in that period you accumulated R100,000 in savings. If you then decide to leave for greener pastures, and receive this cash, chances are your wardrobe will be looking a lot newer or you will be driving around in a new set of wheels; bad move. Firstly by spending this money you will be charged tax at your marginal rate, and secondly you will have blown 7 years of retirement savings. That is an awful lot of money to try and make up. And its not just the R100,000 you lose out on, but the growth of that money too. Lets say you had not spent the money and reinvested it, ten years later at a growth of say 9% your R100,000 would be worth R245,000.

You need to increase the amount you each year by at least the inflation rate.
In order to give you a clear picture of how inflation affects your pocket we have to look to the future. Lets assume that food costs, on average, rise by 7% per year over the next 10 years and your take home pay rises by 4% per year.

If you are currently spending R2,000 per month on household groceries and your take home income is R10,000 per month – your grocery bill will equal 20% of your take home pay. Ten years from now the same groceries will cost you (At 7% inflation) R4,020. If your salary increases at 4% per year over the same period your take home pay will be about R14,908. This means that your identical household shopping would then represent 27% of your take home pay. So the impact of this is you end up paying more money on basic goods and your standard of living would take a knock.

The above scenario carries huge significance for everyone who is saving money for their own home one day or even for their retirement. If you save R500 per month and only achieve a 4% net return per year; against inflation of 7% per year, you are actually going backwards in terms of buying power.

This is of course the worst case scenario, but what it illustrates is that when you save you have to be aware of the effects of inflation on your money. It is no good saying you can afford to save R1000 per month and then keep your savings at that level into the future. You need to increase your annual savings by at least the prevailing inflation rate to see a decent return on your investment.

Save at least 15% of your salary each month.
Experts recommend that you save at least 15% of your pre-tax salary every month, and this needs to be done for at least 25 years to ensure a comfortable retirement.

So now that you know the basic rules the next step is to learn how to save as your career progresses. Most experts will agree that it is never too early to start a savings plan but one has to be careful what one chooses when just starting out on a career. Because young people tend to move around a lot and even go for stints overseas, it is better to stick to flexible investments in the first few years. It’s no good signing up for a ten year endowment and then move to Hawaii a few months later. It could be done, but it is a big responsibility and your income may be erratic. So stick to short term fixed deposits, money market accounts and unit trusts for the first few years of your working life. While
investing in property is always a good idea, it can prove to be problematic if you move frequently, buying and selling homes in short time frame can send you to the poor house because of all the costs involved. Even if you rent out your home, the management of tenants from a long distance can be a real headache. So hold off for a while and take this time to save as much as you can towards a deposit.

When you have decided that you are going to stay put for the foreseeable future then you could consider investing in a retirement annuity (RA). An RA is a great way to save if you are on a fixed salary because you get a tax deferment of 15%. In other words if you earn R10,000,00 per month and save 15% of your salary you will only pay tax on R8500.00. You could also now look at investing in a property. There is no doubt that property is an essential component of a good investment strategy.

Once you have been in a career for five years or more there is a good chance that you have changed jobs at least once and often with these job changes, come higher salaries. Do not waste this opportunity to maximise your savings. It may be tempting to notch up your lifestyle but if you can resist getting caught up in the image culture and invest instead, you will be well on your way to wealth.

Once you have been in a career for ten years or more you will in all likelihood benefit from meeting with a financial advisor to work out how much money you should be saving in order to retire comfortably. You aim should be to have sufficient capital invested to afford you an income similar to that of when you were working. Owning our own home should be a priority because ideally, you should aim to be bond free by the age of 40. That way you still have 20 years or 240 pay cheques left from which to save, without being eaten away by a bond repayment. We spend 100,000 hours of our lives working, we earn millions in that time, so it is entirely possible to get wealthy from our chosen career, we just need to formulate and stick to a game plan.

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What is your money mindset?

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There are many clichés, aphorisms, adage’s and quotes about wealth and those who accumulate it. No matter how overused they are there is a foundation of truth in all of them. For example, they may sound many of them are based in solid fact. Perhaps one of the most defining If you had to choose one defining characteristic of wealthy people, regardless of their backgrounds and opportunities, it would be their attitude or mindset towards money. There are scores of books written about having an abundance mentality. It seems to be over simplistic but the motivational Guru’s say that if you visualise your eventual wealth you will be wealthy, if you see yourself poor you will be poor. Even if you think that it’s all nonsense and only hard work will build wealth, believing that you will be wealthy one day is a mindset worth working towards; after all, you have nothing to lose.

The good news is that it is relatively easy to nurture a wealthy mindset. Before you start working on it, take this quiz to see where you stand currently.

1. When you were growing up your parents
A) Encouraged you to succeed and not to conform to the crowds..
B) Supported you and insisted that you get a degree.
C) Pretty much left you to your own devices.

2. Your parents told you
A) You can achieve anything you want if you put your mind to it.
B) To play it safe and get a secure job.
C) Life is hard, making money is hard and only lucky people get rich.

3. When you are unsuccessful you
A) Put it down to experience and try again.
B) Feel depressed and get angry with yourself about failing
C) You give up trying immediately and try to cover up.

4. Which of these statements fit the way you think?
A) Anyone can make a lot of money if they put their mind to it.
B) Most people have to have a head start to make money, and it is very difficult to get
ahead.
C) I was born in a working class family and that’s where ill stay, I don’t have the
opportunities that other people have

5. If you were presented with a great business opportunity while employed in a
reasonable job you would
A) Jump in with both feet and quit your job.
B) Test the waters and do the business part time.
C) Pass it up you have a secure job and you don’t like risks.

6. What does money mean to you?
A) Money buys freedom of choice, and gives me the ability to help others.
B) It gives me a comfortable life but it does not buy happiness.
C) It means I can pay my bills, but I will never be able to make enough.

7. Rich people are:
A) The ones who grow the economy and create new products and ideas.
B) Contributors to the society but they really don’t care about the poor.
C) Mean, ruthless and selfish, they don’t care about anything but making money.

8. Do you believe that money is the root of evil?
A) Not at all, it makes the world go round.
B) No but too much money can corrupt people.
C) Yes for sure, I think communism still has merit.

9. If you won a million you would
A) Start the business you have been dreaming of.
B) Invest most of it and continue to work.
C) Blow it on a car and a buy a bigger house, there is plenty of time to save.

10) Do you know what it takes to become wealthy?
A) Yes I read success stories about entrepreneurs and as many business books I can
get my hands on
B) I have a fair idea but I prefer to earn a regular salary.
C) No and I don’t care, its out of my reach, as long as I can feed my family I’m fine.

If you chose mostly A’s

You have an excellent money mindset. You may have grown up with entrepreneurial parents, or parents that were not mired by social dogma and expectations. You have eliminated your negative beliefs about money and you are ready to put in the effort to achieve your goals. You realise that money in itself has no absolute value. It’s the things that money can buy that makes it valuable. Of course it can enhance your lifestyle but people with truly wealthy mindsets start to think how they can help others once their own wants and needs are taken care of. You understand that making money requires an element of risk and you are prepared to fail a few times in order to make
it. You understand that if you don’t succeed straight away, it is not an indictment of your ability but rather a learning opportunity. You tend to be optimistic and have plenty of self confidence, traits that augur well for becoming rich.

If you chose mostly B’s

You have the beginnings of a good money mindset but still hold onto some limiting beliefs about becoming wealthy. You like the idea of being wealthy but you are unsure how to go about it. You tend to be risk averse but you are sufficiently knowledgeable to realise that if you want to achieve wealth as opposed to an average standard of living you have to become your own boss. Start reading books about money, wealth, business and investing, to compensate for your tendency to avoid risks. Knowledge is a great confidence booster. Biographies of how others have succeeded should give you the encouragement you need to start your journey.

If you chose mostly C’s.

You have negative and limiting beliefs about money that are deeply entrenches. You have bought into the philosophy that making money is a bad thing. You may compound those negative beliefs with the fact that you think that making money is laborious. You may resent people who make lots of money because you may have heard your parents saying that rich people are unscrupulous and selfish. You are extremely risk averse and may even stay in a job you hate to maintain a steady
income. Its time to change those beliefs and reframe the way you think. If your mantra is ‘money is not everything, or I am happy being poor’ well, that’s what you will be-poor. Try and replace negative statements with positive ones. Look inward and get in tune with your values and your worth as a human being. Move away from people who pull you down and align yourself with people you admire and respect.

On the other end of the scale, some people put way to much emphasis on money. Balance is the key here. For example, if you have a product that you are selling and you pull out your sales folder at a wedding, you are not going to win any friends.

If you never come to terms with how money can be of value in your life, it will limit your ability to attract more of it. Before you learn about the steps you need to take to engender a wealthy mindset, you should start examining why you are holding onto the beliefs that stop you from pursuing wealth.

If you discover a few write them down. For example: ‘I can’t be more successful than my parents’. Then write down the consequences of earning more than your parents. You may find that they are positive. This will free you up to succeed.

Finally examine why you want to be wealthy. Everyone has the right to be wealthy. Many of us get caught up in cohort term issues. We allow a temporary lack of funds to erode our confidence. People are poor because they have not yet decided to be rich’ Try and consciously decide to become wealthy and have faith that you can achieve. Your beliefs will mirror your .actions.

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Retirement has two faces

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On the one hand we are fed images of grey haired tanned folks, sipping margaritas under palms reading classics or swinging at golf balls on pristine pieces of real estate. These retirees look like they are in the throes of ecstasy and life could not be better. On the other hand we have been scared witless by the financial advising community telling us that only 5 in 100 working individuals will be able to retire. We are told that we will be forced to continue working past 65, and this is a really bad fate to endure.

The scenario’s are at opposite ends of the spectrum, so which one should we believe?

Well unless you are one of the very small minority that saved for at least 25 years and earned a decent salary, the idyllic pictures we see of retirement are few and far between. However having lots of money is not the only contributor to a successful retirement. Lynda Smith, a certified life planner who works extensively with the Baby Boomer generation to help them ‘refire’, says one of the key factors to a successful retirement is the exact opposite of living a life of leisure. She says that many
executives lose their sense of purpose when they leave the working environment. Retirees, she says, simultaneously lose a community, status, and their reason for getting up in the morning. They can often sink into a deep state of depression and even get physically ill.

Smith says ‘Humans are hard wired to work, or at least to have a purpose; the phrase ‘dying of boredom’ does not come from no-where. The world has changed vastly since the industrial era when brawn ruled in the factories and workers were unquestioning drones. A set retirement age made sense when the industrial bosses needed strong fit people to keep fueling their factories, but this is no longer a requirement of the modern world of work. In late 1800’s a man was considered to have had a long life when he died at 46! Now a 46 year old is just warming up!

When the western world finally settled on the mandatory retirement age of 63, the average working male lived until he was 65-67. Now the average male can easily live to 78, and it’s increasing every year. Women are living even longer than that. This poses a huge dilemma, what are we going to do with the extra 20 to 25 years of our lives? And more importantly, how are we going to fund these extra years?

This leads us to the other aspect of retirement, the not so pleasant, underfunded part. Most people do not have enough for 5 years in retirement let alone 25 years. There are many reasons for this but we can examine them until the cows come home but it will not change the situation for people who are in this position. We need solutions.

So we know that we are a tad short when it comes to funding our retirement, that’s the bad news, but the good news is that we do not have to retire at 65. Why would we want to anyway? We can only sip so many martinis and endure so many daytime soapies. In fact 60 is the new 40, we are fitter and healthier than we have ever been and if we enjoy our work we should keep working, and if we hate out jobs it’s time to ‘refire’as Lynda puts it. Many people are looking for new careers as they reach retirement age, not only for money but for personal satisfaction. This relieves an awful lot of pressure on our retirement funding. If we can delay drawing from pensions for 5 to ten years it could solve some major head- aches.

Let’s say for example you are 65 years old and you have R1,5 million invested with no debt and your doctor tells you are in great shape and should live for at least another 20 years. If you could leave that money invested for an extra 5 years earning a real return of 5% (after inflation) it would grow to R1.9 million. If you could keep contributing to the fund it would look even more impressive. If you could leave the funds untouched for a further 5 years your coffers will grow to R2.4 million.

So if you are heading towards retirement with fear and trepidation reassess your career, if you hate hat you are doing find something that you enjoy and move into the role gradually while working in your existing career. If you need help have a look at www.refirementnetwork.com or get yourself a copy of Mitch Anthony’s book called The New Retirementality . This information will lift a huge weight off your shoulders. There is no good reason why we should stop working because of some arbitrary age restriction that was set over 100 years ago. The world of work has changed and so
should we.

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