Budget Investing

Posted in Blog
27/05/2019 Mduduzi Luthuli

Many people put off investing because they think you need a lot of money to start. This just isn’t true. You can start investing for as little as R500 per month. The key to building wealth is developing good habits—like regularly putting money away every month. If you make investing a habit now, you’ll be in a much stronger financial position down the road.

Don’t believe us? Here’s how to get start investing with very little money:

Focus on What Matters

Most of the news you hear about investing focuses on the ups and downs of the stock market. And while that can certainly be entertaining, the truth is that those ups and downs are largely irrelevant when you’re just starting out.

There are two things that do matter though, and both your wallet and your anxiety level will thank you for focusing on them instead:

  1. Your savings rate: No other factor is even remotely important as your savings rate. Investing even a little bit now will help and finding small ways to increase that savings over time go a lot further than trying to study or time the stock market.
  2. Costs:Cost is the single best predictor of future investment returns, with lower costs leading to better returns. Minimising your costs is especially crucial when you’re on a tight budget, since even small fees can take a huge bite out of your savings.

Prioritise Your Debt

It’s no secret that South Africans like using their credit cards. The SA consumer has developed a reputation for spending excessively. This, in turn, has led to a rather harsh backlash against any and all debt, with personal finance experts taking an almost uniformly negative stance on the topic.

And sure, all things considered, it’s preferable to be debt-free. But there’s a lot more nuance to the situation than simply treating debt as the devil. So much depends on interest rates. Investing in your future, such as a home, education or small business loan, often makes a ton of sense. Depending on the interest rate, and your financial discipline, there’s often no reason to view this debt as a life-crippling emergency.

This isn’t to say that maintaining credit cards and other high-interest debt is a great idea. However, the idea that you need to be debt-free before you start investing is simply not true. Especially when you’re looking at a more low-cost investing strategy that takes these debts into consideration.

Be Passive

If the idea of picking your own stocks is scary to you and you don’t have the funds to hire an investment manager, don’t worry, there is a solution. You can invest in a multitude of index or exchange-traded funds (ETFs), more commonly known as passive investing. Passive investing provides the opportunity to own a single investment, that encompasses many assets, providing optimal diversification at minimal cost.

Start Early for Retirement

Even those with tight budgets and little disposable income can start to invest for retirement. The less one has, the more important it is to start early. Paying yourself first might sound like a cliché, but the reason you hear it so often is because it really works.

Lifestyle is a choice. If your current lifestyle uses all your income, it is time to cut back. Go back to the budget and start squeezing. Examine both your necessities and luxuries — be honest and thorough — and then decide what you can do without.

Also, think of consulting with an investment manager. The more steps you take, the closer you will be to a secure financial future.


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