One of the things that confuses foreigners about South African English is the use of the word “now”.
You might be asked: “When will you deliver your assignment?”
If you reply “now”, in many cultures that would create an expectation of immediacy.
As South Africans, you and I might know instinctively that means: “soon.” As in, not “right now”. Certainly, it’s quicker than “now-now” and definitely at least six hours faster than “just now”, but not what the dictionary defines as "now".
Unfortunately, this is the approach most of us take to saving. We’ll get to it just now.
Here is the most compelling case I can make for you to start saving immediately. Not now, just-now or now-now, but immediately.
My radio show team and I have been tracking the investing habits of someone we find quite remarkable for the past seven years.
“Julia” (not her real name as she wants anonymity from needy friends and family) is a thirty-something professional who a little over a decade ago was wondering why her aunt seemed to wear better clothes than other members of the family, went on better holidays, and seemed so much more financially secure than most people she knew.
It was on a road trip from Durban to Johannesburg when her aunt talked to her about investing.
Julia was starting out in her career as a well-paid management consultant with the prospect of growing earnings and a secure life ahead of her.
At the time she was earning a very good salary of R350,000 a year. She’d saved up R60,000 in cash and went to a meeting with her aunt’s financial adviser, who asked her a simple question: what is your goal?
Her answer: “Financial freedom by the time I am forty.”
They hatched a plan that would enable her to live a great life, invest, and pay her taxes without breaking a sweat. Roughly, it came down to dividing her monthly income into thirds.
It was just before the financial crisis in 2008. Julia set off with great gusto. As markets fell, she got cold feet and invested less than she had agreed to, but kept up the discipline of putting money away every month into lower-cost index tracking funds regardless of market conditions. She continued to do so as markets recovered.
She invested in a range of index funds with the vast majority of her early savings going into Satrix 40 and a range of other funds as she learned about the vagaries of different markets.
She drove an Opel Corsa Lite, lived in a one-bed flat close to work and minimised her expenses. Still, she was able to eat out several times a week and indulge in her real passion for travel, which to date has seen her visit 36 countries.
As her income grew, she kept her lifestyle more modest in terms of monthly expenditure compared to her peers, who were buying flashy cars and prestige homes.
She met a man, fell in love and they moved in together, he took over the Corsa Lite, and they moved into a slightly bigger flat.
She carried on with the monthly investments and over 11 years has put away about R2.2m. Most of that however was invested in the market by the time she had her first child, three years ago. Since then, life has happened and her rate of investing in the market has slowed dramatically as she has focussed on other priorities: a family car, a house which required some renovating, and the inevitable expenditure which comes with having children. The JSE has delivered very little in terms of real returns for the past three years, so what she has done instead is aggressively pay down the debt on the house which at the current rate should be paid off within the next three years, by the time she hits 40.
The R2.2 million in a mix of local and off-shore exchange-traded funds (ETFs) has quietly been growing in the background. This time last year, the value of her ETF portfolio was sitting at R4.2m. Over the past 12 months she has added only about R100,000, but the portfolio is now worth about R4.8 million thanks to the momentum which has built up in her portfolio.
Julia, at age 37, is achieving what we all wish we could do and is on track to attaining financial freedom by the time she is 40.
The house will be paid off by then, and even if she never invests another cent in her ETF portfolio, it continues to grow at an average compound rate of 10% a year. Imagine what it will be worth by the time she is 65.
By the time she hits 40, without adding a cent of new capital, the substantial amount she has invested will balloon by R1m to R5.8m.
By the time she hits 50, she should have a little over R15m invested.
At 60, it would have grown to R39m.
At 65, to nearly R63m.
Of course, nothing goes up in a straight line. Markets are as unpredictable as life itself. But here is the point. She started at the age of 27 and invested diligently for at least eight years. Even without adding a cent. She will achieve more financially than most people can ever hope to.
She didn’t procrastinate. She didn’t fall into the “now” “just now” “now-now” trap.
She just did it.
Bruce Whitfield is a multi-platform, award-winning financial journalist and broadcaster.