Retirement or emergency fund?

Anet Ahern, the chief executive of PSG Asset Management, responds: Understanding that market conditions are temporary and subject to change, with the current news often quickly reflected in prices, may be the investor’s best protection against this constant uncertainty. It is this knowledge that can help us to tame both fear and greed (the twin enemies of investors everywhere), by forcing us to take a longer-term perspective to investing. This approach also helps to cement the importance of diversification as an investment strategy. Once the inbred variability in the market is understood, investors are much less likely to fixate on one single approach as a “silver bullet” to wealth creation, and far more likely to spread investments widely.

The combination of a defined process, structure and as much objectivity as is realistically possible are powerful in coping with uncertainty and preventing behavioural pitfalls in investing. Although it is important to acknowledge the emotions embedded in investing, it is even more important to apply structure and objectivity as a safeguard against knee-jerk actions, which can damage a long-term investment plan in profound ways.

Markets are variable, and investors should plan accordingly. Start with a proper assessment of what you need and what risk you can tolerate. Implement with the emphasis on building a weather-proof

How do I determine what to prioritise – an emergency fund or retirement savings? It’s difficult to know where to focus, particularly when money is tight.

Name withheld

Emile Jansen van Rensburg, a wealth adviser at PSG, responds: This is a tricky one, as both savings goals (savings toward retirement and building up a rainy-day fund for emergencies) are crucially important. You can’t take out a loan to fund your retirement, but you need to have money to be able to fix a leaking roof or a faulty car engine.

If you have to choose, we recommend your first priority is saving towards a rainy-day fund for emergencies. It should be able to cover three to six months of your expenses. In addition, you should save in a product that is easily accessible, such as a money market account where it will earn more interest than simply keeping it in your dayto-day savings account, where you may be tempted to spend it. Last, make sure that you think seriously about what constitutes an emergency and what doesn’t before tapping into this fund.

Once you have made some progress with your rainy-day fund, start focusing on putting some money away towards your retirement – and don’t leave this too long, as the longer your money has to grow, the better. The tax deductibility of retirement fund contributions can also make this more affordable than you might think, and perhaps you can, in fact, afford saving for both goals at the same time.

It is best to speak to a

Richus Nel, a financial adviser at PSG, responds: There is a common hesitation when it comes to appointing a financial adviser when you’re already short on finances. Modern society is, however, convinced in most disciplines that knowledge, technique, applying proven principles and having a plan result in superior outcomes

Sports coaching is very similar to financial advice – as we all have behavioural routines (driven by our emotions) that might cause financial imperfections. These can quickly unravel our investment plans and expose us to unnecessary financial risks. Most of us need assistance in identifying our financial blindspots and, second, in being equipped/trained to break these routines in order to become better at managing our finances.

Clients who are assisted by financial advisers in a “coachlike” manner are empowered and better prepared through mentoring to improve the areas that have proven superior outcomes. In this sort of coaching dynamic, it’s highly beneficial for both individuals to be honest, admit failures/ mistakes and celebrate the victories along the way. Victory shows evidence of progress and inspires clients to greater financial heights.

We cannot always remain objective when it comes to our own finances. Having a financial adviser who can prepare you to overcome financial challenges is worth every cent. In time,

Schalk Louw, a wealth manager at PSG Wealth, responds: Some say that you should use 80% of your current spending as the benchmark for what you’ll need to cover your monthly expenses once retired. Let’s use this as a starting point. We’ll work on a basic monthly income of R15 000. By applying the 80% rule, you will need at least R12 000 a month after retirement in order to maintain your current standard of living.

We also need to factor in a safe withdrawal rate, which allows you to withdraw 5% of your portfolio yearly in order to ensure that you don’t outlive your savings, as well as account for inflation. If you don’t properly compensate for inflation, you may fall short of your required total after retirement.

It’s also important for you to take into account any possible variables that may affect you, such as declining health or the possibility that you may still have to cover mortgage bond payments after retirement.

Knowledge is power when it comes to saving. With the help of a tool such as a retirement calculator, you can work out how much you will need to save each month in order to reach your retirement total, which is a great starting point for your savings journey.