The triumvirate of saving & investing

If you’re black and young, particular facts face you, no matter what background you are from, even beyond the scope of your material conditions; the wealth gap between you and your white counterparts widens as you get older and the social implications that bear the brunt are undeniable.

This was proven in a 2018 study that tracked black men in America who were born between 1978 to 1983. The realities between black South Africans and African Americans may differ somewhat but similarities can’t be overlooked. Yes, in South Africa black faces occupy political power, we are the majority and we control some sort of narrative in popular culture, but, and this is a big but; economic power and the keys to accessibility lie in the hands of our white compatriots. This perhaps epitomizes white privilege; white people continue to expand capital and exert economic influence despite the fact that they make up less than 10% of South Africa’s population.

This gap isn’t due to brilliance and entrepreneurial gusto but an inherited skewed monopoly on access and funding. However, in 2019 many more things are becoming more accessible for people largely thanks to an explosion of free content and knowledge, a rising risk appetite for many South Africans and of course, the change in political landscape. Building wealth is now more comprehensible than it was 24 years ago for Africans. However, this is a long game, quick and easy fixes shouldn’t be tolerated nor should they be entertained. Saving and investing is an art of time and discipline which requires knowledge of a very few things in the initial phases. Black tax, saving up for lobola, repaying your student loan, buying your first dream home and having your BMW while having drinks in Taboo on your weekends can be a lot to consider if you’re trying to have a healthy work-life balance and a handsome net worth. Contrary to Johan Rupert, you can excel and live a warm life as long as you stay true to a few principles.

Wealth, and the creation of wealth has many secrets and many more lessons to learn. If you want to build generational wealth for you and your children knowledge of liquidity, volatility, market caps and interest rates will do a lot for you and yours. This is quintessential if we have to consider expansion of capital and economic might. But as I said, this is a play on time and not necessarily on flex. If you are a black person, in fact a young person trying to get to the point of expansion a few things you will have to consider, well three, and these aspects will build the foundations of wealth creation and the technical of interest rates and market caps will expand that base.

In 60BC three of the most powerful men in Rome formed the legendary triumvirate; these men being Pompey, Julius Caesar and Crassus. They consoled ‐ acted power through an agreement of convenience. Pompey was egocentric (debt), Caesar ambitious (investing) and Pompey modest and risk averse (savings). This union was held together by self-interest and convenience (credit). All these factors gave rise to the greatest empire the western world had seen.

Let’s consider the first point in your to be wealth empire, debt our egocentric component in our triumvirate. We get 3 types of debt, grade A (home loan), grade B (car financing) and grade C (credit card). Ideally, your debt pool should mostly consist of grade A and a B. This is your “good” ego, your Sasha Fierce. If you were to have a good deposit on your home loan and you top up your monthly instalments (fast track your debt) you are then able to leverage off this and increase your equity stake = higher investment return. At this point leasing or selling your home becomes a viable option as long as your equity position makes sense.

Grade B debt, vehicle financing, only makes sense in my opinion if your instalment, insurance and other costs such as car track don’t cost more than 15% of your gross salary in total. This is all, in measure a good way to manage that ego. Grade C debt is your bad side, narcissistic and over pompous characteristic. This isn’t entirely bad as credit cards can offer valuable head‐ room. This is in accounting terms is called “liquidity” and it should be used sparingly only as a measure of convenience, we will touch on this point later.

The second component is investing, the Caesar of the triumvirate. This is your “bullish” component, your ambitious long-term game. If you have a plan, make sure you start it right and strategically. Buying individual shares and trading in CFDs and forex sound cool, but this isn’t how you start your long-term goals.

4 things to consider:

  1. Open a tax-free savings account (max 33k saving per year & 500k in your lifetime),
  2. Consider having life policies if you have dependents and if you don’t, starting early helps in terms of future premiums as you are younger and healthier,
  3. Open an ETF or unit trust if you have spare change after the above two points, and
  4. Educate yourself on the markets. Listen to the money show on 702 at 6pm during the week or alternatively watch channels 412 and 413 on DSTV (these will help when you consider dabbling in stocks direct.

Ideally, financial planners will advise that one saves and invests a minimum of 15% of their gross salary per month. This goes a long way, when it comes to reaching your retirement goals and building your empire.

Lastly, Crassus, your conservative component. Always consider on having a modest emergency fund, a saving pool of some sort. This fund should cover unexpected curve balls that life throws you. A good vision requires a safety net. If 30% of your money is going into investing and your repayment of debt then no less than 10% should go into a 7 day or thirty day fixed de‐ posit account. This helps you cover expenses such as house maintenance, unexpected once off payments, holidays and other non-core items in your household.

All these three things are held together by credit. Your credit card is your measure of convenience, not your life line, not your go to trick but your play on the next move. My rule of thumb is that your credit card limit should not compromise more than 70% of your safety net. Let’s break it down this way, in many instances using your reserves to purchase an item that is “immaterial” can be nonsensical considering many credit card facilities are interest free for the first 30 to 40 days. Paying off your credit purchases at the end of the month through excess cash creates immense headroom and liquidity (and a good credit rating).

So, let’s wrap it up, building a strong foundation in your pursuit for financial freedom can be strenuous and exhausting. Discipline is always needed and sacrifices will be made. To ease the burden consider making a spreadsheet, track expenditure and start now! Key points to consider as as follows;

  1. Try keep your ego modest (debt) and fast track debt repayment,
  2. Ambition is a play on time, start of small and conservative. Create a good foundation for your investment goals. Open a TFSA and other passive investment vehicles then broaden your investment knowledge if you so wish to be aggressive by later investing in stocks & other investment (property etc.),
  3. Build a healthy safety net, your safety net should be large enough in time, to protect you for 3 months if you were to be in a distressed financial strain, and
  4. Credit is good if you control it (a mix of “bad” ego and convenience). Keep a low limit, consider credit terms of your bank, make sure you meet repayments (if possible settlement) of your credit card monthly. You don’t have to live a cash only life if you can access credit!

Let us know if there is anything specific you would like us to cover.

Written by Inga Galeni

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