Wealth Management – How to get into the mindset of saving
Karl Botha
Consultant – Wealth Management
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Mastering the mindset of saving
There’s a reason why so many home gyms are sold very cheaply on Junk Mail and Gumtree. There’s also a reason that they are usually sold several months into the New Year. They are the result of failed and poorly constructed goals, often formulated as ‘New Year’s resolutions’.
The pitfalls of poorly constructed goals
Savings and investment plans too, whilst never appearing in online adverts often start with great intentions (often also as a New Year’s resolution?) only to be abandoned or discarded on the heap of failed dreams due to poor definition, imprecise planning and overly idealistic goals.
Misconceptions about timing and planning
A common misconception when it comes to an investment plan – whether it’s for a family home, a coastal retirement, or to put children through university – is that this same plan will become apparent ‘when the time is right’. Just as with other lifestyle change motivations (those same home gyms already noted) potential investors tell themselves that ‘It’s tomorrow’s problem’ or become fatalistic with a justification that ‘something will probably happen and I’m unlikely to even survive until then and I’ll have sacrificed living’.
The success – or not – of formulating, planning, implementing, and actively managing one’s savings and investment plans falls squarely into the complex world of behavioural finance, which is not the intended direction of this simple call-to arms of starting a financial plan.
Importance of goal clarity
Remembering an English lesson at school that defined the difference between a wish and a goal as being that the one had a defined end-goal in a defined time period, and the other had neither, various (in fact there’re lots) procrastination quotes are relevant to the success of financial planning. ‘Following-through is the only thing that separates dreamers from people that accomplish great things’ says motivational speaker Gene Hayden. Nike’s byline says the same thing ‘Just do it’!
The longer the time frame and the less specific the financial plan is, the harder it is to plan for. The fairly immediate goals of a deposit on a house, or the purchase of a motor car are far more tangible and apparently relevant than mere ‘retirement savings’- especially when short term objectives are being required to be compromised in the pursuit of this esoteric and intangible objective.
Insights from professional financial experts
Speaking with GTC’s seasoned professional advisors, it is clear that the lack of specific goals, the imprecision and vagaries of ‘retirement savings’ and the pressing demands of short term financial requirements are the biggest stumbling blocks to well-founded financial plans.
Too many of our clients realise Einstein’s 8th World Wonder (written about in a separate article by Kyle Jeacocks) much later in life than they wanted to.
Using GTC’s Runway Edge software and experiencing the lightbulb moment that another (say) ‘seven years would double my retirement capital, and how I wish I’d begun seven years earlier…’ is an all too common occurrence.
Government’s capitulation to union pressure to allow retirement savings to be used for immediate use (termed Two-pot) is an example of how long term financial planning is compromised by short-term necessity. Ahead of imminent elections, this release of members’ retirement monies is understandable, though not from a conventional financial planning perspective.
That this also speaks to South Africans (generally) either living beyond their reasonable means or becoming poorer in real terms through no specific fault of their own (also written about in another article this quarter) is perhaps the subject of future articles.
Parallel to life events
A savings and investment plan, combines financial goals both in the shorter term as well as long-term. A successful plan requires a clear goal, a determined time frame, an objective and anticipated outcome. Delivering this successful plan firstly requires some knowledge and technical understanding. Thereafter discipline, immediacy, resolve, commitment and fortitude are compulsory ingredients.
Having said all this, this recipe looks very similar to that required for a successful career, marriage, or any other life event worth achieving. Just do it!
