4 Enemies of Wealth Creation.

by / Monday, 08 July 2019 / Published in Investments

“You cannot defeat your enemies before you know who they are.” – Anthony Horowitz

Investors generally see political-, economical factors or the under-performance of their investments as the main reason that they struggle to build their wealth.

The truth is that although these factors do play a part in detracting from wealth creation, there is even bigger “enemies”  that most people don’t give the necessary attention to.

The enemies for wealth creation are as follows:

  1. Inflation:

    Also known as the silent killer. The safest way to protect your cash is to hide it under a mattress or to leave it in a bank account. Although this is a safe route to take it can get in your way to building wealth. If you are saving in a bank account for 3% and our inflation is 6%, you are not creating wealth, in a years time you will be able to buy less with your investment that you currently can. Your investment need to be structured that it can out perform inflation over the long term, even with some short term pain, to create wealth.

  2. Taxes:

    Not only do you get taxed on the income you earn, you also get taxed on the growth of your wealth through capital gains tax or a tax on the income of the investments. And to make it worse you will have estate duty at death on the money you saved your whole life. In the end its not what you earn but more about what you can keep after all the taxes are paid. Most people never learn how to use tax advantage strategies to understand how to keep most of what they earn or grow.

  3. Debt:

    All debt is not created equally. There is definitively advantages to take calculated risks when taking out debt to buy a value appreciation asset. But most of our debt is for purchases on expenses and “assets” that decreases in value. We use the borrowed money to maintain a lifestyle that we can’t really afford. Household debt in South Africa is a staggering 71.9% to income. To make matters worse is that if you services debt you wont be able to save or to invest. Which bring us to our last enemy.

  4. Saving too little or too late:

The market can go up 30% per year, but if you only invest R 100, you won’t become a  millionaire. Only 6% people in South Africa will be able to sustain their standard of living into  retirement. If you start saving at age 25 you will only have to save 15% of your salary for  retirement. If you wait until the age of 35 to start saving, you will now have to save 24% of your salary. If   you only start at the age of 45 the savings rate shoots up to 43% of your salary. If you don’t stay within these guidelines you will probably have to work longer or be dependent on someone else.

The more you save the closer you will come to be financially independent. When you confront these enemies it may seem like a mountain in front of you that seems unscalable. But the only way to conquer the mountain is to take one step at a time.

Start with paying of one small debt you have or save an extra R 500 per month.
In the end these small steps will make all the difference.

Now that we know our enemies, we can take a step closer to defeating them.

PJ Botha CA (SA)

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