Member Newsletter
Quarter 4 • 2020
It is only natural that as your income increases over the years, you make improvements to your lifestyle. The problem is that we spend money on things that we see as essential, but these are in fact luxuries. This ‘lifestyle creep’ will eat into the money that you should be saving and investing for your retirement. You must look after the future you. If you are in need of any help, guidance or support during the coronavirus pandemic, please contact our employee assistance helpline – their details are in this newsletter.
Also in this newsletter is a glance at the Fund’s portfolio performance as well as some insights into the new financial emigration law.
In This Newsletter:
Tips on Resisting Lifestyle Creep
If the line between needs and wants is becoming increasingly blurred, you clearly have a problem, as you will be spending more and saving less.
The term 'lifestyle creep' describes the process where you spend more money and upgrade your lifestyle as your income grows. The danger is that this usually happens without you noticing it.
The most common trigger for lifestyle creep is a pay rise. Your increased income makes you buy things that may previously have been unaffordable, even if you don't need them.
Lifestyle creep can happen to anyone. If you deny yourself certain luxuries but then see others enjoying them, you jump on the bandwagon when you think that you can also now afford those luxuries.
Have you ever bought a fancy cellphone, a holiday or a car because you believed it was good for your image or you wanted to win the approval of your peers?
If you are being totally honest, in most cases the answer will be 'yes'. Some people, however, will not admit to envy or vanity. Instead, they will argue that they work long, hard hours and fully deserve the material rewards.
Keeping up with the Joneses is the one financial sin that no one readily admits to.
Buying things that you don't need or cannot really afford is a sure way of spending the money that you should be saving and investing for your future.
One of the biggest mistakes you can make is treating a large portion of your earnings as disposable. You then eat into the investable portion of your income – money that you could be saving for your retirement.
What keeps many of us poor is spending too much on trying to look rich. We should rather be investing in assets that are invisible to the neighbours but are actually the basis of growing real wealth.
Too many of us have no safety net and would be in serious trouble if we were hit by an unexpectedly large bill or an emergency. You should have set aside an emergency fund of at least six months of your salary, for using in an emergency or when something unexpected happens.
If you received an unexpected invoice that is more than your monthly salary, and have to pay it within two days, could you pay it without borrowing money?
If the answer is no, then you don't have an emergency fund.
If you have to borrow money to pay that invoice, all you've done is move the goalposts – because you will still owe the money.
More isn't necessarily better. Understanding what constitutes enough is fundamental to your financial well-being. Once you stop buying more stuff and acknowledge that enough is enough, you will be much better off financially.
One way to think of marketing is that if someone is advertising it, you probably don't need it. These days, you can't look left or right without someone trying to sell you something. And to make matters worse, marketing banks on your impulses. Whether you are on social media or simply browsing online, someone will try to market to you. And if you are not disciplined, then your finances will soon be in trouble.
Improve your savings mindset by making small changes. For example, put your savings goals in writing. Research has shown that when you put your goals in writing, you have a greater chance of following through.
You should also automate your savings. The best thing you can do is to set up an automatic transfer from your salary directly into your savings account every month.
Examine your savings goals. Remember that hard-to-attain savings goals are likely to make you abandon your savings plan and slip back into your old spending habits. You’re more likely to make saving part of your routine if your goals are realistic. Remember to start small.
If you get a salary increase, you should increase the amount that you save every month. It is also a good idea to pay off your debt as quickly as possible. Remember that you are paying interest on most of your debt and this is money that you should rather be saving.
Put strategies in place that will help you avoid temptation. An excellent example is drawing up a budget. If you are about to purchase something that is not allocated on your budget, then don't buy it. Even with grocery shopping, make a list, buy the required items, pay and then leave.
As a family, you all need to be on the same financial page. It is a good idea to sit down with your partner to discuss your financial strategy and to draw up a budget. For example, it would be pointless if you are being frugal yet your partner is running up huge bills with online shopping.
You can discuss your spending in general and see if there are any other opportunities to save money. Create a spreadsheet and list your fixed expenses. Revisit it monthly and adjust it when needed. If you do this, you will see a huge improvement in your spending patterns.
Review your financial strategy with a financial adviser at least once a year. Be open and honest with them and they will help you establish and achieve your short- and long-term financial goals.
