- Published on Tuesday, 24 July 2012 02:35
- Written by Jagjit Singh
- Hits: 1214
The moot question remains as to why should I start early? You don't have to, but then the loss is yours. It's ironical that people stave off simple steps that can bring them the very things they hanker after — a swanky car, palatial house, cross border holidays, or a comfortable retirement life etc. If you start putting away puny portions of your money in proper investment avenues, it's unlikely you will want for funds.
Isn't it simpler to invest small amounts over a longer period than struggle to muster bigger funds in a short span of time? Besides, you can benefit from compounding.
It's the 'rolling snowball' effect. Compounding adds to your earnings on your reinvested earnings. The longer you leave your money to work, the more exciting the numbers get.
What I have narrated above is nothing complex in context, rather a simple but true hard fact. However world wide statistically it has been proved that majority of people do not follow this simple logic when it comes to their financial planning. I am sure some of you may not be convinced by what I am stating; hence it is important to hear straight from the horse’s mouth itself. Here it goes.
This aversion to one's own financial well-being and the untimely concern has been documented by the HSBC report on “The Power of Planning 2011”, which conducted a global survey. According to this survey, 54% of people aged 30-39 years did not have any short-term savings, while 35% in the age group of 50-59 years were not saving for retirement at all.
To be fair, nearly 17% of all respondents were concerned about the risk of doing nothing for retirement. Yet, this concern fails to materialise into action. Why?
The inertia or revulsion for financial planning can be attributed to various reasons. Youth is a period redolent of revelry, marked by material pleasures and witness to heightened consumption. So whether you are still in college or have just acquired a job, unabashed spending to seek peers' approval is a norm.
Saving and investing take a backseat. Since marriage, kids and retirement are so intangibly unreal and distant, planning for these goals seems almost unfair. Time, however, is a juggernaut rolling with such pace that you are in your 30s before you realise you haven't even begun planning. While it's never too late to start setting your finances in order, you have lost precious years of wealth creation.
Another reason is the unfounded belief that finance is an inscrutable science and, hence, not to be tampered with. The fear and awe of the subject is so deep-rooted that people would rather jeopardise their financial security than try to understand it. If they did, they would realise that managing money is an acquired skill. You learn on the job and improvise along the way. The important thing is to make a start.
Although there is saying that “it is never too late to start,” however starting late has its own peril. For example, if you start investing a measly Tzs. 10,000 a month when at 20, you will have accumulated almost equal to Tzs. 64 million by the time you are 60 years old (assume investment returns @ 10% p.a). If, on the other hand, you start saving the same amount at 30, you will be able to pile up only about Tzs. 23 million by the time you reach 60 years.
Did you observe what a huge difference it has created for the person who had a delayed start by merely 10 years? This is the risk I was trying to highlight, if you start late. So, are you now convinced about the early start when it comes to savings and investment?
If you are ready to embark then it is important at this stage to figure out your risk appetite as well as your financial personality. How much risk can you digest to reach your goals? Will you opt for high-return, high-risk options or would you rather have ensured returns at low risk?
More crucially, analyse yourself to find out if you have any personality aberrations—do you spend too much, or are fickle with your plans, or simply lazy about your finances? Discipline yourself before embarking on any investment to make sure you stay the course.
This is where it comes to planning. I’m a great believer in the power of planning. If you aren’t working to your own plan, then almost anyone can hijack your attention and efforts to their cause. It’s not that you can’t have flexibility; you definitely can! But flexibility should come within your own plan for your life.
If you don’t have a plan, now is the time to make one! But mind it, planning alone will not solve the problem but a kick-start is needed and “EARLIER THE BETTER”. Never forget that “a good plan today is better than a perfect plan tomorrow”. So what are you waiting for to start?
Jagjit Singh Technical Adviser, Unit Trust of Tanzania, Email: