Most people know or have overheard that reaching your financial goals takes time. Unfortunately, most people only start to prioritise their financial goals after the age of 40. This leaves only 25 years to 65 when they retire and it then becomes very difficult to reach financial goals or to become financially independent.
When people realise that they are running out of time, they often times fall for investment scams promising superior returns only to fall way short being nothing more than pyramid schemes. So what’s the solution for young people?
Young people can tap into a new normal by choosing to live a life style completely counter culture and save huge amounts of money, thus being able to start their investment program much earlier while reaping the phenomenal benefits right through their lifetimes.
Most young people can’t wait to get their first pay check so they can buy their first car, normally too expensive for them but having to satisfy their egos.
There’s a new trend emerging where young people do it completely different to previous generations by not owning their own cars and finding other ways of transport for their daily (and other) transport needs such as Uber and other modes of transport.
I came upon an article written by a young actuary, Pieter Du Toit that actually put this to test and recorded the numbers. He originally thought that ditching his car he could save around R25 000 to R45 000 a year. It did mean that he had to move closer to work but in the first year he saved nearly R100 000. If you take the monthly instalment, insurance and petrol expenses, parking and annual services and maintenance into account it is not difficult to see that you can save huge amounts annually by not owning your own vehicle. It would require a new mindset though as driving expensive cars is such a part of young and old mindsets.
If you could utilize this extra amount of R100 000 or even just R50 000 per annum and start your long term savings plan you could be financially independent so much sooner. Let’s look at an example of two people John and Alex. At the age of 25 John chose the route of using Uber and lift clubs etc where Alex bought his flashy wheels. John started investing the savings of R50 000 in an equity unit trust, yielding a net return of 13% per annum. By the time Alex started his savings program at the age of 40, John had already accumulated an amount of R 2 290 524, still only investing R50 000 per annum.
Alex started with R10 000 per month or R120 000 per annum to catch up to John. By the age of 65 Alex had saved up R22 40 915, while John had now accumulated R67 412 773 at the age of 65, more than 3 times as much as Alex while still only paying R50 000 per annum.
Over the 40 years John used only R2 000 000 of his own money to get to the R67 412 773 while Alex invested R3 000 000 of his own money to get to his R22 470 915.
The benefits should be glaringly obvious.