29 Nov 2021
There’s a common myth that a salary cannot make you wealthy. The myth comes from a good train of thought; which is that the path to wealth is ownership, and not renting out your time for money. Ofcourse, the myth throws the baby out with the bathwater; since, quite simply: your time can earn you money, which can then be used to buy and own assets.
I used to think of investing as simply throwing some money into an account, forgetting about it, and then coming back to a larger amount at a later stage.
This proved to be a broken approach for me, since it gave me false conviction that I was an "Investor", and meant that I invested infrequently, and therefore invested less overall.
Luckily, before my age caught up with me, I found a more sensible approach that worked for me.
To build a house out of bricks, you need to continually add bricks. The same goes for wealth. The most important thing to build wealth from nothing, is to continually add money.
Think about how much you can afford to invest every month, and set up a debit order that invests that money when you get paid. You will thank yourself after a few months.
“Overeating does not defeat hunger”- Xitsonga proverb
In other words, consistency is better than intensity. If you receive a weekly or monthly income, then investing that money consistently over a long period will go a long way.
If you invest R1000 per month this year while the inflation rate is 5%. You would need to invest R1050 in the following year to be contributing the same value of money.
Increasing your investment amount every year ensures that your contributions aren’t decreasing in value over time.
Investing, in simple terms, is all about placing money somewhere with the expected outcome of growing it.
The success of an investment is determined by how much it grows. Ideally, you want your investment to grow as much as possible.
Banks often offer fixed interest accounts that grow at a fixed rate every year. However, these might have your money grow at rates lower than inflation - which essentially means that your savings are losing value and purchasing power over time.
Other options that have higher rates of growth that beat inflation are also open to you. You can read more about the different Types of Investments from Investopedia.
With all that said, it’s great to know where your wealth will be in the future.
Imagine that you’ve just started investing R5 000 a month, and increased this monthly investment by 10% every year.
If your investment grew at an annual interest rate of 13%, then after 5 years: Your investment would be worth just over R490 000.
If you invested R10 000 instead, then you would have just over R981 000 after 5 years.
Grows to R982 000 after 5 years
I created the Simfolio app to help investors get a clearer view of how much wealth they would have in the future considering how much they're investing into different accounts. You can download it for free on the Apple AppStore or Google PlayStore.