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Smart ways to outwit inflation

Check in on your finances to ensure your future financial wellbeing



Now that the year’s in full swing and we’ve (sort of) recovered from the festive season spendathon, it’s a good time to think about planning for the future. How much do you need to stash away each month to ensure you’ll maintain a reasonable standard of living in 10, 20 or 30 years time?

As financial-education consultant Iona Minton puts it on her Twitter feed, @IonaMinton, ‘If you keep saying “my life is great except for my finances” it’s like saying I’m healthy except for my 100 kilos of flab’…


Increase the amount you save each year by at least the inflation rate
The reality is that our money buys less each year. In March the inflation rate was 5,9%; scarily, the average rate in SA between 1968 and 2014 was 9,46%.

As Minton explains, if your grocery bill eats up 20% of your net income, 10 years from now the same groceries will cost you (at, say, 7% inflation) R4 020. And if your salary increases at 4% per year, grocery shopping will now cost 27% of your income. As a result, your standard of living drops. ‘If you save R500 per month and only achieve a 4% net return per year, against inflation of 7% per year, you are actually going backwards in terms of buying power,’ she warns.


Save at least 15% of your pre-tax salary each month.

Experts recommend this should be done for at least 25 years to ensure a comfortable retirement. Your company savings plan isn’t enough to retire on.


And don’t cash in your pension early!

If you switch jobs and cash in, you’ll be taxed on the payout, you’ll struggle to make back the money you’d accumulated. Plus you miss out on accumulated interest on that money. Resist the temptation. See www.ionaminton.co.za for more useful advice.


Make investments that outperform inflation in the long term.

In an article entitled ‘Inflation: What is the risk of doing nothing?’ in Investor magazine, Invesco Perpetual strategist Michael Joynson advises protecting yourself against a possible fall in standard of living by investing in ‘real’ assets, such as businesses (or shares in businesses), or property – both of which have in the past increased in value by appreciably more than the increase in the cost of living over the same period.


For advice, find a reputable, independent financial advisor accredited by the Financial Services Board. Visit www.fsb.co.za or call 0800 110 443 or 0800 202 087.


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