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The secret here is to split your monthly savings into long and short term investments. Possibly you can even have a medium term saving plan.
The first step to building wealth is to amount a buffer of at least three month’s salary, but if you are able to set aside a little extra every month it is possible to begin building on your long term investment strategy immediately. Otherwise build your buffer savings as quickly as possible and then turn your focus to long term investments. Let’s have a more detailed look at the issue.
Amassing your first million is not going to be quick, but there are things you can do to speed up the process relatively safely. I’m sure you’ve heard it before, “Diversify your portfolio!” What this means is that you should not put all your eggs in one basket when it comes to saving and investing.
Short term savings should be put into low risk accounts, while long term investments can afford you a more risky approach. Investing for ten years or more in a high risk portfolio will allow the possible market slumps to be compensated for by market highs. In essence the “up and down” movement on higher risk portfolios averages out to give you a generally higher interest rate over an extended period than the low risk portfolios. The secret to success in investing is to have a strategy and stick to it. For a long time.
So if you are investing a set monthly amount into a higher risk portfolio it is highly advisable that you keep to that investment policy for at least ten years. The longer you keep to it the more money you will earn in interest and compound interest.
Compound interest is your best friend (as an investor… if you’re in debt – well it can be a different story). Basically compound interest is the interest that you earn on your interest. So if you save R100 per month and earn 10% interest, the following month you will again earn 10% on the R100, but you will also earn 10% on the R10 interest you earned the previous month. This is how your money grows, and it is beautiful.
Once you have grown your savings enough it will be possible to use the interest you earn from your investments for luxuries, while allocating more of your salary to bolstering your investments! Effectively you will be gaining a second income. That does not mean you should buy double as much stuff, but rather you should invest more!
Smart investments lead to financial freedom. It’s not that hard, in fact it’s quite easy, so check out your options for purchasing money market or unit trust packages that will get you on your way to a wealthier lifestyle.
