We all want money to provide ourselves with shelter, food and to send our children to school. But the way we spend money on products and services needs a revisit to determine their importance. To ensure the correct use of money, whether young or elderly, we should consider to educate ourselves on the importance of money and how money works before deciding on our living financial plan. This financial plan is worth nothing if it is not implemented and monitored accordingly.
In our financial plan, we have to decide on how much money to allocate to present enjoyment and also for the future enjoyment or spending. I perfectly understand the difficulties of suspending the present rewards that our money can buy us for future rewards, but trust me – if you make provisions for the future, you will have a stress-free retirement. For most of you who believe and seem to practise the saying that: “You take care of the present and let the future takes care of itself”, will strongly disagree with the idea of deferring current spending to the future. The supporters of the above quote tend to argue around the issues of living. The concern is that no one is certain of their livings because lives are threatened by the world’s problems such as diseases, pollution and wars, to mention a few.
Although lives are threatened by the aforementioned world problems, one has to measure the probability of them happening and consider the world’s efforts to reduce these threats. A good example is presented by the government of Namibia’s effort in improving the citizens’ wellbeing in terms of increase access to clean water, births attended by skilled heath professional, anti-retroviral therapy and immunisation coverage. These government efforts, together with the apparent changes in the citizens of country, are noticeable through the Namibian life expectancy, which has increased from 53 years in 1990 to 60 years of 2000.
With the indication of the government’s efforts to improve the living standard of its citizens and continuous global innovations to reduce world challenges, I strongly believe that life expectancy will continue to grow and I highly advise my fellow citizens to watch their spending habits and start putting money aside (saving) for their retirement. A lot of people might think putting money aside is not necessary as their employment pension (pay-out), government pension allocation (grant) and the support of their children will be sufficient to sustain their living in the future. If you are thinking this way, with the exception of those citizens who desire to downgrade their living standards in retirement for the dependence on government support, you should perhaps look at your current standard of living and make some projection of how much you will need when you retire to maintain your current standard of living, which is hard to determine before you spend all your money as you earn it.
Before you consider saving for your financial independence, you might consider the following basic steps recommended by Warren Ingram in his book “Becoming your own financial advisor”:
1 Have a realistic budget and stick to it.
2 Be free of bad debt at all times – you
accumulate these debts when you use debt to
buy things that will be consumed or will not
appreciate in value over time.
3 Building an emergency fund that you can use
in the event of a financial emergency – not
only does this keep you away from incurring
debts from facilities such as banks and cash
loans, but it will also help you enjoy the
same living standard in the event of a job loss
while you are searching for your desired next
employment. To build an emergency fund,
you should determine your average current
monthly expenses and slowly allocate money
to the fund until the money in the fund covers
six months of expenses. For example, if your
monthly expenses are N$10,000, you should
save in the fund until it reaches N$60,000
(6x N$10,000). You should save this money
in an interest-bearing fund such as money
market fund offered by both local commercial
banks and management companies registered
by NAMFISA, or a 32-day account offered
by commercial banks. Before you decide to
place your money with either a commercial
bank or management company, please do pay
extra attention to their fees, as high fees will
reduce the interest earned by your money.
You should avoid paying high fees at all
costs. As an investor, you should shop around
and ask as many questions as possible for
your understanding of the financial product
offered by the aforementioned financial
services provider. For the list of approved
NAMFISA management companies (unit trust
companies), see the list on the NAMFISA
website: http://www.namfisa.com.na/. Money
saved in a money market fund is accessible
within 24 hours while 32-day accounts require
one to give a 32 days’ notice to the banks for
the release of the money.
4 Reduce and eventually eradicate all debt – all
the debt that you have incurred that doesn’t
appreciate in value should be eradicated (such
as clothes and furniture accounts).
5 Build your investment portfolio – when your
emergency fund is taken care of as described
above, you can now start to invest your money
for growth, as you are rest assured that in the
event of an mergency you will not liquate your
investment portfolio. “Investment portfolio”
refers to a collection of investments in various
securities or investment instruments. For
information on how to build an investment
portfolio, watch the next consumer bulletin.
By Mr Gabriel Indombo