Analysis: OLUSEGUN OMONIWA
“A FEW lines of reasoning can change the way we see the world” – Steven E. Landsburg
One activity that is particularly popular at the start of every new year is making resolutions (a determination or decision to take action on something specific). Though we are now almost three months into the year, it is not too late to make clear-eyed financial planning resolutions. I urge you to make resolutions that will build financial security not only for a short term, but for many decades to come.
Here are some tips on how you can build financial security below –
1.Invest in the right perspective: If you are thinking about investing for retirement and you have 5, 10, 15, or even 20 years more until you retire, what happens in 2019 or even 2020 is not too important from a financial markets point of view. Sticking to a long-term plan is what counts. Growing your wealth to meet your retirement needs will require some investment in equity or ‘ownership’ with long-term growth prospects as part of your overall investment plan.
One way to achieve this is to invest in the shares of good quality companies which are in the right industries/sectors and meeting long-term consumer needs. Doing this means you can potentially participate in the secular growth of these industries over a reasonable timeframe. Just think about an investment in Amazon shares 10 or 15 years ago and how much it is worth today? Perspective is very important even as you approach retirement. Your requirements for free cash or near cash in retirement could be significant and will require an investment portfolio structure that is designed to deliver a regular income.
Stretching the concept on perspective about retirement even further; your retirement can last for decades today with advances in health care. This means a portion of your investment portfolio in retirement still needs to be geared for growth in those years.
2.Commit to living below your means but within your needs: The saying usually goes – ‘live within your means’. Unfortunately, this may not guarantee wealth growth in the long-term. As far as financial planning advice goes, living below your means is the holy grail on building wealth. This point should be considered regardless of where you are on your wealth accumulation journey, and should feature in any listing of financial goals. You should get as much pleasure out of saving as you do from spending in order to remain on the path to building lasting wealth.
A key reason this goal takes on additional importance in 2019 is that interest rates globally (and locally) are rising – this presents an opportunity for savers to be rewarded incrementally, and on the flip side, punishes those living above their means. If you are in paid employment this year, consider using any salary increases to fund your savings and not increase your debt by virtue of qualifying for higher loan amounts.
Avoid lifestyle creep and lifestyle inflation in 2019 by committing to living below your means, but within your needs.
3.Invest in yourself: Committing to invest in your mental, emotional and physical well-being is probably the best decision you can make in 2019. The case for greater mental investments are summed up in the opening quote of this article. For all the financial steps we can take towards managing or growing our wealth for a goal like retirement, we should not lose sight of the fact that arriving in retirement in the best possible emotional and physical state will have a huge impact on the quality of life with which we enjoy our wealth. Being in good mental, emotional and physical health may allow you work longer, if needed, to meet your goals and also reduce your long-term healthcare costs.
A personal investment along the lines described here can pay dividends for a lifetime!
The author is Head of Wealth Management, Zambia and Southern Africa – Standard Chartered Bank.
Analysis: OLUSEGUN OMONIWA