Analysis: MAXWELL PHIRI
IN THE last article we looked at point number one (01) as to why you should save for retirement. I also made several references in the Bible to affirm that saving is not optional. This week we are looking at point number two: why people should save.
2. Lack of savings / investment knowledge. It is amazing that in this era people have solutions in their hands to search for important information on investment, but unfortunately they do not seem to take advantage of that. One of the common tools people need in order to get information on savings and investment is the smartphone. This is the era in which nearly everyone has a phone and the only purpose for which they use it is to be on social media chatting on Facebook, etc. I agree with what Albert Einstein said: “I fear the day that technology will surpass our human interaction. The world will have a generation of idiots.” Can you imagine that you don’t need to walk into a bank to inquire on savings or investments? All the information is on your smartphone, but what we see now is that the gadget is underutilised or misused.
Let me take time to discuss the difference between savings and investment. It’s easy to think of ‘saving’ as investing. While the two often go hand in hand, they also work quite differently. On a practical level, saving involves putting aside money today for use in the future. It’s what economists describe as ‘forgone consumption’. In other words, rather than spending all your money, you keep some in a savings account for future use.
Savings are a sensible starting point in investing because it provides the funds you need to buy a range of different assets. However, investing goes one step further, helping you achieve personal goals with three significant benefits. While saving means setting aside part of today’s money for tomorrow, investing means putting your money to work to potentially earn a better return over the longer term. Different classes of investment assets – cash, fixed interest, property and shares – typically generate different levels of return, which is relative to the risk of the investment.
For most of us the quality of our retirement will depend on how much money we saved. While you may have some retirement income in the form of social security or a pension, it may not be enough. That means it is up to you to plan for and put some money aside for retirement. Retirement is personal and your employer can only do so much.
You joined the institution alone and you will retire alone. You need to plan for retirement early in order to enjoy compound interest. Imagine if you had started saving 10 percent of your monthly income plus compound interest at 25 years of age, when you received your first income, this time you would have accumulated quite substantial amounts of your retirement before the actual retirement. If you do not plan for your savings, someone else will plan for you. They will lump their expenses on your money since you are proving that you cannot plan for it.
I have interacted with some retirees who are in the habit of condemning national social security firms despite all the efforts being made by the Government on behalf of employees to provide the service. One thing I normally ask them is how much personal investment they have made towards their retirement. In most cases the response has not been good.
Having the retirement of your dreams takes planning. You may have 30 or more years to seriously think about what you want to do in retirement and how you are going to get there. Time can either be your greatest asset or your worst enemy. If you start early, time is on your side and your money can work ‘hard’ for you. If you wait until retirement approaches, you will have very little time to catch up. Furthermore, it is advisable to stop getting loans from banks or your employer 10 years before your retirement if you are to retire debt-free.
I would like to remind you that if you do not plan for your money, someone else will plan for it by turning you into an automated teller machine (ATM), or tentatively you will be their bank standing order every month. Wake up and start saving now!
Remember, my desire is not to see you completely destitute and financially broke after your working life, but leave employment as a smiling retiree.
The author is director – human resources and administration at Rural Electrification Authority.
Analysis: MAXWELL PHIRI