Invest with purpose – making the first steps

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In a fight, the one with little knowledge will suffer unnecessary blows. This is similar to investing with no purpose or limited understanding of why you are doing it. To many people especially in developing nations investing is a key challenge because many people are surviving on hand to mouth. Therefore those who are able to invest need to invest with purpose.

In this article we discuss some of the critical things to consider especially for a new investor. We will address the following:

• Where are you going?
• What investments are good for you?

Where are you going?

The most important thing you need to understand before you invest your money is yourself. Can you answer these questions:

• Who are you?
• Where do you see yourself in few years to come?
• If you are working, are you happy with your job?
• Do you see yourself working all your life?

Life happens – sometimes things go against your plan. People lose jobs, get sick or die. Others will lose money on their businesses while others will be trapped in debt.

You may find the following articles necessary:

• How to transform your dreams into goals.
• Think beyond income and expenses.

Furthermore, as you discover who you are and what you are heading towards, you need to write down your “realistic” goals.

Note that if you focus on what you can do, it becomes easier to do what you think you cannot do. Focusing on unrealistic wishes can rob you of the faith and hope you need to do what you can do.

In addition, you need to simplify a long term goals into more realistic short term goals you can do. Suppose that you want to retire with R 10 million in 40 years from today, then you have to find the present value of contributions you will need to invest today.

Avoid being overly optimistic – if your target is R 10 million, set aside a bit more as if your target is higher than that. This will ensure that you will remain on track when unplanned events in life happens. Invest with purpose – that is the key driver.

What investments are good for you?

If your mates are making money on the Stock market, it does not mean you should invest in stocks. What if investing in real estate is the most appropriate for your goals?

Money should never determine your goals but your goals should determine your money.

The key to be content with your wealth on investments is to invest with purpose. The money you invest should be calculated with a clear objective. All investments are great if used properly. We will consider the following:

• Emergencies
• Short term needs
• Long term needs

Investing or saving for emergencies

Emergency Fund

An Emergency Fund is a savings wallet that can help you when you are experiencing money challenges. For example if you lose your job or anything that may disrupt your finances. Most financial advisors advise people to save up to 3 months worth of your monthly needs. If for example you need R 10 000 for rent, food, utilities and fuel then you should aim to have an Emergency Fund of R 30 000.

Let us note the following:

• An Emergency Fund should be easily accessible to you if you need money.
• If you are to invest the money in the Emergency Fund, you have to choose secure short-term investments.

Therefore, for an Emergency Fund, less risk investments and saving products are the only options you have. An investment or savings account that is easily accessible in case of emergency is the most appropriate.

Investments like Bonds, Shares and Real Estate are not suitable for this because they are long term in nature.

Insurance

1) Car Insurance and other short term insurances

When you have a car, make sure that you have at least a Third-party Insurance so that if you hit another car by mistake, you will not have to take the money from your savings.

Please note that if you acquire your car on debt, make sure you also add Comprehensive Insurance. My strong advise is for you to also add Gap Cover Insurance so that in case of an accident, you will not be left with a shortfall after the insurance company settlement. Gap Cover Insurance is very important – it is very painful to pay for a car that you are no longer using.

You may also consider insuring your household contents so that in case of events like fire, you will not have to use your savings.

2) Medical Aid and Life insurances

Medical aid and life insurances also work more or less the same as the previously discussed insurances. A medical aid will help you when you get sick or if you are seeking for any health need that is approved by the Medical Aid company. Medical aid is very important because we do not know the day we are going to be sick and the type of sickness we are going to have.

With life insurance, you can be covered against critical illness, disability and also your family can receive money upon your death. For more information about disability cover, you can read an article from Zonotho.

Short-term needs

Short term needs are those that you need for your everyday life. This can vary with people. To some, 3 years is considered short term. Saving for a car may be considered short term by others. You need to define your own short-term goals.

The key idea on investing for short-term needs is that you minimize as much risk as possible that is you only invest in secure investments. Some of the best candidates for Short-term needs are:

• Savings accounts
• Notice Deposits
• Fixed Deposits
• Money Market

Long-term needs

If you are planning on saving for a house or leave behind inheritance for your family then you may need to consider long term investments.

For long term goals, a savings account is not a good candidate. To save at least R 1 million in a savings account with 5% interest rate you need to contribute about R 700 for 40 years. This is very challenging to do considering that it is not easy to maintain consistency. Therefore, you need to invest with purpose by choosing an investment that gives higher yields in the long run.

The best idea will be to invest the R 700 in shares or bonds that will give you higher long term yields than a savings account.

The best candidates for long term needs:

• Stocks
• Real Estate
• ETFs
• Bonds
• Fixed Deposits Investments

Conclusion

In conclusion, you need to invest with purpose. You do not need to throw away your money blindly. Know what you need and invest in that. It is very important to have several investments that are catering for different needs for example:

• Holding stocks in different companies to meet long term goals like retirement or family inheritance.
• Notice Deposit with a bank to register for professional exams in few months time.
• Emergency Fund.