Identifying your Savings and Investment Goals (2024)

Any listed company has a strategy outlining where that company wants to go and how and when it is planning to achieve this. The same can be said about an individual looking to achieve long-term financial success. As an investor and saver, you should know where you want to go (identify your goals), how you are going to achieve this (investment and savings strategy), and the time frame associated with those investment and savings goals.

Having a set plan in place can help you stick to your strategy, stay the course during periods of uncertainty and ultimately reach your goals within the desired time frame. The below steps can be used to set up a plan:

The first step would naturally be setting your different goals. What are you saving or investing for?

What amount do you need to put away each month, and into which savings and investment vehicles?

• This step will require you to consider your monthly cash flow. Comb through your bank statement and identify what items you don't need on a monthly basis. Draw up a small cash budget, reduce non-essential expenses and leave yourself a set budget for entertainment purposes.
• Build an element of emergency savings into your budget. One thing this pandemic has taught us is the importance of having accessible emergency savings put away. Having three months' salary put aside will mean not having to withdraw investments early in case of an emergency and allowing your goal-based strategy to play out.

Short term debt like credit card expenses should be eliminated as soon as possible, as the high interest rates eat into monthly budgets which can be set aside for saving and investing. Look at ways to eliminate debt exposure by eliminating short term expensive debt first. In the long run this will mean more funds to but away into savings and investments.

This will require some reading and research. Never be afraid to ask for help. Asking questions expands your knowledge and no one is going to know your goals better than you do.

These amounts are calculated when drawing up the budget in step 2.

Do not jump in and out of long-term investments and savings. This will increase the fees paid and not allow your money to work over the long term and achieve long-term investment and savings yields.

The last step will allow compounding to take place. Compounding leads to increased returns over the long term as a result of profits and returns being re-invested. By not withdrawing money from your investment, the capital base grows. Returns and profits are higher from a larger capital base, making your goals achievable in a shorter period.

Regardless of your goal, reaching it means aligning a strategy to the objectives of the investment. Once a goal and strategy are defined, selecting the correct investments becomes easier to do. Whether your goal is a 5- or 50-year plan, there is an investment and savings vehicle that will suit your profile and timeline, assisting in making those goals a reality.

For shorter-term goals, the following savings instruments can help achieve goals as well as assist in diversifying portfolio risk:

Instant access cash deposits are perfect for flexible savings, i.e. saving for next year's school fees or a holiday. Savings Account and Money Maximiser offers the flexibility to contribute amounts as you wish, and you can withdraw the funds should the need arise.

FNB's 7 Day Notice requires a minimum initial deposit of R20 000, while the 32 Day Flexi Notice deposit allows for a minimum initial investment of R1 000. In general, the longer the notice period, the higher the return.

FNB's Fixed Deposit is a good way for the low-risk investor to guarantee a return over a set amount of time between 7 days and 60 months. FNB's Fixed Deposit locks in your capital for a set period but provides a higher return than the notice accounts. This is an ideal way to earn a fixed return - making budgeting for your goals easier, as returns consist of a set of regular pre-determined interest payments.

Long-term investing requires patience and, by allowing your investments to compound over a long period, goals can be achieved faster. For longer-term goals the below investment vehicles (which should be given enough time to achieve sustainable returns) can be used to compile a balanced portfolio:

An ETF is a passively managed investment that tracks a basket of shares or an index. This is a low-cost option to buy exposure to many shares that make up an index. Investing in ETFs offers flexibility in terms of how much you contribute, the ability to cash out should you choose to do so at any time, and a low initial contribution from as little as R500. ETFs are a good long-term investment vehicle and can be bought and sold through a stockbroker like FNB Share Invest or FNB Stockbroking and Portfolio Management.

Unit trusts allow the investor to get exposure to different asset classes, like cash, bonds, property and equities, with a single investment. FNB offers five funds that have been designed to match your goals and developed to ensure that investors get the maximum benefit during their desired investment period.

Investments in ETFs and unit trusts can also be made via an FNB TFSA structure. When using a TFSA both the capital appreciation and income are tax free if you do not exceed the maximum contribution of R36 000 per year and the R500 000 limit over your lifetime. Contributions can be made monthly or in a lump sum and funds can be withdrawn with short notice should they be required (but keep in mind that this affects your contribution limits). Designing your investments through a tax-free structure increases your overall returns due to the tax benefits, accelerating your goal timeline.

A retirement annuity fund is a long-term retirement savings and investment vehicle. An RAF allows you to grow your savings tax free like a TFSA with no tax on interest, dividends or capital appreciation. There are a few differences regarding the contributions and withdrawals. When putting money into an RAF, you must wait until you turn 55 years old before converting your contributions into monthly annuities. Should you withdraw funds before that, you will be heavily taxed. Once you have reached 55 years of age, up to one-third of the fund can be cashed out as a lump sum, and the remaining two-thirds will be paid out as a living annuity over the period of retirement. When investing into an RAF your money is tied up; thus, an RAF has been designed specifically with retirement and achieving long-term retirement goals in mind.