South African consumers are facing a number of financial challenges considering the increases in the cost of living as well as rising inflation and interest rates.
One of the financial challenges that people are facing is living with only one source of income to take care of all of their financial needs. Therefore, consumers turn to starting a side hustle.
Luke Martins, Financial Planning Coach at Old Mutual Wealth said that getting a second full-time job or a part-time job could be the solution, but it may be unsustainable.
"By nature, a side hustle should not demand too much of your time, nor should it detract from your primary source of income," Martins said.
Instead of taking another job, people should turn to investing as a side hustle, according to Martins.
Investing in shares allows you to have a share in a business that you don’t have to start or manage, provides you with an opportunity for investment growth from different countries, and gives you a stake in innovative technologies, all of which will result in your investment growing.
Making your shares work for you
By putting a portion of your money into a business and, as a result, owning a small share of it, you create for yourself passive income, which you can use to advance your financial goals and to take care of financial emergencies.
Martins said that you can reinvest your dividends because it allows you to acquire more shares, thus enhancing your portfolio and positioning you to benefit more from compound growth.
When investing, it’s important to put your money into a mix of different asset classes such as shares (or equities), bonds, real estate, commodities, and currencies.
"Equities will give you the best opportunity for growth, so it is critical that these form part of your investment portfolio," Martins said.
Martins suggests that people take a look at their household budget to create room to start investing as a side hustle.
Ester Ochse, product head, FNB Integrated Advice, shares three things you need to know about investing.
You need to match your investment horizon to the type of fund or solution that you are selecting.
The biggest threat to your investment:
– in the long term, inflation
– in the short term, volatility
"You want to ensure that your long-term investments aim to outperform inflation, and exposure to growth assets is the way to do it. With options that start from as little as R300 per month, there is a solution for all goals," Ochse said.
Create timelines for your investments
Having time lines for your investments is important:
When investing for 0–2 years, you mainly need to consider cash and money market investments. You should also include your emergency savings here. Goals for these investments can include saving for stationery, school fees for the next year, or a holiday.
If you invest for 2–7 years, you will have exposure to some growth assets, such as shares and property, as well as some defensive assets, like cash and bonds. Goals that fit this type of investment include education or saving for a house deposit.
Investing for 7+ years is true long-term investing, and exposure to proper growth assets is important. This type of saving is ideal for retirement and long-term wealth creation.
Avoid too-good-to-be-true investments
If you are promised returns that are beyond reasonable and seem too good to be true, then it is best to stay clear of them. Instead, focus on consistent saving and investing to see the payoff in the long run.
According to Ochse, the most important rule for saving is to start early and start small. Starting earlier allows you to have the benefits of compounding interest as well as returns, and you can slowly increase the amount of money that you are saving.