Make your money work for you
Victoria Reuvers, Director and senior portfolio manager at Morningstar Investment Management SA discusses how your money can work for you.
Firstly, you will need to adopt these challenging but painless habits:
1. Pay yourself first, before anything that you may be committed to paying at the end of the month, that bond, clothing accounts, or vehicle finance – adopt the habit of rewarding yourself and put that money aside.
Financial institutions will allow you to create an automatic transfer from one account to another which makes paying yourself easy and painless and convenient.
2. This is a long term strategy, so consistency, financial discipline and patience are required.
“The pain of discipline is measured in ounces, whereas the pain of regret is measured in tons.” -Jim Rohn
Morningstar did some research looking at the amount of time it would take an investment to reach R1-million. Their work is based on two factors.
First is the amount of money you contribute towards your savings, ranging from R200 to
R10 000 per month. Second are the returns generated by the portfolio. Many investments offer higher returns over a short period with the best return you can get through a bank account is 17 percent per annum.
The table below demonstrates how long it would take to reach a million if the two factors are taken into consideration – the amount contributed and the annual returns. Note, the table does not consider inflation and assumes the returns and contributions were constant.
(Table: Morningstar Investment)
The table shows that with consistency it is possible to generate R1-million in savings by cultivating a savings habit with no immediate gain in sight and letting compound interest, work for you.