It is difficult to be disciplined when your salary increases. Building savings habits, however, and giving them the priority they deserve, assists in avoiding the downward spiral of living beyond your means. This essentially means that you don’t let lifestyle inflation (spending more when earning more) take over and set you back. The longer you follow the pattern of spending more than saving, the more you risk falling behind in reaching your financial goals.
Where should you save?
A number of options are available from a retirement annuity (RA) to unit trust (UT) discretionary portfolio, or a tax-free savings plan. A qualified financial planner can help you determine which set of products is right for your needs, tailored to your unique circumstances.
The right plan is tailored to your needs
Your own vision of financial freedom or reaching retirement early (or at a reasonable age) might differ significantly to someone else’s. As with all financial plans, the right plan is one tailored to your needs. Your plan also needs to be revisited as your circumstances change. The financial planning process can help you determine if changes are needed, or whether you should rather stick to the original plan – which is often the hardest thing to do. You may be tempted to live more lavishly as you get salary increases along the way. Remember that these inflated living expenses potentially feed into your need for retirement savings – and therefore you should revisit your financial plan accordingly.
As times change, you may need to change your thinking
Our framework for being able to accumulate savings has changed. Employment flexibility from moving between jobs, or taking some time off, or even taking on more than one job, allows us to lead more rewarding lives, but with consequences to our long-term savings. Preserving retirement savings when changing jobs is non-negotiable. If you take time off work, you will need to make it up elsewhere, either by saving more when you return to work, or by working for longer.
Improved healthcare, leading to longevity might mean being able to retire later. For every year you postpone retiring, you are not only not using your retirement savings to sustain you, but you also have a chance to continue accumulating more savings. But discipline needs to remain. It’s important to acknowledge that many of our spending ‘needs’ are really disguised wants. Being able to separate between the two, in favour of your future self can make all the difference.
Take a word of advice
The value of good financial advice lies far beyond selecting a product or fund. Rather, it lies in providing perspective on the challenges you face, and in helping to temper the emotional reactions that destroy value. There are many challenges in dealing with a world characterised by longevity, filled with temptation and distraction from our financial goals, but a good financial plan, maintained with the help of a qualified financial adviser, will go a long way to helping you reach your goals.
Nirdev Desai is the head of sales at PSG Wealth.