Creating and maintaining wealth needs a lot of planning and dedication

Young couple going over bills and finances.
Young couple going over bills and finances.
Image: 123RF/Mark Adams

It is important to prepare for major financial decisions since most life events will have a direct impact on your finances.

Whether you are getting married, buying your first house or starting a new job, you will be worried about how this will affect your finances.

As you approach each of these major life events, it is important to consider the financial consequences of each decision.

Below are some hard choices and important decisions you have to make about your life to succeed financially:

What career you follow

We all want wealth, but how do we achieve it? It starts with a successful career that relies on your skills and talents. Your career is the engine of your wealth. The more you earn, the easier things should be financially.

You have a very important financial asset that many people tend to overlook: you.

You will most likely increase your human capital through studying further or getting a promotion.

This will show itself in the form of an increase in your income.

Whether you marry the right person

People who say they are experiencing stress in their relationship mention finances as the number one reason.

Disclosing your financial situation to your partner before getting married is necessary, regardless of how uncomfortable it may be.

This is the time to mention debts, loans, income sources, investments or other financial assets or obligations.

They say the fastest way to lose your wealth is to get a divorce, and a slower way is to marry someone with bad financial habits.

The cost of your house

One way to waste a handsome salary: buy a house you cannot afford. If there is one number that drives your financial life, it is your fixed living expenses.

We are talking about regularly recurring expenses that are unavoidable when you own a house, such as bond payments, water and electricity costs, renovations and home insurance. The lower your fixed living costs relative to your income, the easier it is to save.

Whether you have children or not

Raising a child is not cheap or easy. You must have a solid financial plan to ensure that you can give your child the best life possible.

You can compare raising a child to a second housing bond. This is because raising a child is a long-term commitment that could last for years until they become financially independent.

Research on South African middle-income households show that it costs about R90 000 a year to raise a child.

What car you drive

Buying a car is one of the largest financial decisions one can make. When it comes to buying yourself the dream car you deserve, the best advice is to buy the car that fits your finances.

How early you start saving

Warren Buffet wrote, "Don't save what is left after spending; spend what is left after saving.

"How much you spend determines your savings rate. If you are young, time is one of your greatest friends in wealth accumulation. You will never get more in the future."

Simple calculations show that a 23-year-old who invests R6 000 every year for 10 years at an annual return of 8%, will have R93 873.

If after those 10 years, she stops contributing and does nothing until age 60, her investment will have grown to R749 863.

The person who waits until they are 33 to begin investing will need to save R7 950 for 27 years, in order to have around R749 863 at age 60.

Whether you do it yourself or get a financial adviser

You definitely do not need a financial adviser if you have self-control, financial planning knowledge and self-knowledge.

Given that our lives are so full of other activities, you are likely to need assistance with financial planning from qualified people.

Financial advisers are in the business of investor behaviour modification. The investor's chief problem and even his worst enemy, Benjamin Graham said, is likely to be himself.

We all have emotions and biases that affect our decision making, so we need a voice of reason to assist us to act rationally.

Would you like to comment on this article or view other readers' comments? Register (it’s quick and free) or sign in now.

Speech Bubbles

Please read our Comment Policy before commenting.