Easter is upon us, and every shop aisle is packed with colourful rows of Easter eggs. There’s no denying that chocolate eggs are delicious. But have you thought about a much more important type of egg: your nest egg?
What is a nest egg?
A nest egg is a sum of money that you’ve saved up for the future. It is often used to refer to the money you’ve saved during your working career in order to financially support yourself after you retire. Your nest egg could also be a “rainy day fund” that keeps you afloat when something unexpected happens, such as losing your job or having to deal with large, unexpected expenses.
Why should you care about this now?
You may have only just started you first job, or maybe you’re even still busy with your studies. So setting aside money or saving for your retirement is probably the last thing you’re thinking about. The fact is that the cost of living is rising, and if you don’t have money set aside for unexpected incidents, you may find yourself in serious financial trouble. Life expectancies are on the rise too, meaning that after you retire, you may need funds to support you for 20 years or more.
By starting to save as early as possible, you’ll be able to steadily build up a secure nest egg that can support you in the case of a financial emergency, or when you retire one day.
Tips for building your nest egg
Saving money can be difficult, especially if you’re still a student. Fortunately, you don’t have to set aside thousands of rands every month to start the path towards a healthy nest egg. Here are some tips to help you get started.
Tip 1: Start as early as possible
You should adopt a mindset of saving from as early an age as possible. If you’re a student who works part-time jobs, then you should make a point of saving a little bit of money from your wages. As mentioned, it doesn’t have to be a lot – maybe even as little as a hundred rand per month – because when you start saving young you have more time to build up your savings.
The great thing about starting to save money early is that it compounds over the years. Compounding means that you’re earning annual interest on the money you’ve saved, and in turn you’ll earn interest on that greater sum the next year. The earlier you start saving, the more interest you’ll accumulate.
Tip 2: Learn about retirement plans now
Why should you start thinking about pension plans and retirement funds now, when it might only be 50 years until you actually retire? Apart from compounded interest, younger people pay far smaller monthly premiums charges on their retirement plans. At Old Mutual, for instance, people who take out a retirement plan at age 25 will pay a premium of less than R200 per month. People who take out a plan at age 65 pay more than R12 000 a month.
There are several types of retirement plans available in South Africa, including pension funds and retirement annuities. You should do your research into the options available to you, and if you’re currently employed, you should also be aware of whether your company contributes to a pension fund for you.
Old Mutual offers a good guide to the various types of retirement plans.
Tip 3: Stick to the 10% rule
To help with saving money, a good rule of thumb is to put 10% of whatever you earn into a savings account. When you might even be struggling to pay your rent and buy clothes or other essentials for the month, then the 10% rule can seem impossible to achieve. When you look carefully at your finances, you might realise that there are some unnecessary expenses that you can definitely afford to cut down on. Saving a little bit of money here, and a little bit of money there, can help you to achieve your 10% goal.
Tip 4: Find affordable ways to fund your studies
Studying towards your future can be expensive. Fortunately, institutions such as Oxbridge Academy allow you to pay in monthly instalments, meaning that you don’t have to break the bank. Again, look for areas where you can cut down on unnecessary luxuries so that you can pursue the most important goal of creating a better life for yourself through studying.
This Easter, enjoy all the festivities of Easter egg hunts and time with the family. But always remember that you should also always be seeking to create your own nest egg!