This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin – The Financial School of Real Life.&nbsp;CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.



An incredibly popular topic when it comes to investing is the differentiation or option to invest with lump sums at a particular point in the market or invest monthly and make use of the idea of a “cost-average” over an extended amount of time. In this article PocketFin CEO , Pierre Van der Merwe explains the difference between a lump sum investment and a monthly investment and lends his opinion on what works best for wealth creation over the long run.







<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="548" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/02/austin-distel-DfjJMVhwH_8-unsplash-820x548.jpg" alt="" class="wp-image-397473" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/02/austin-distel-DfjJMVhwH_8-unsplash-820x548.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/austin-distel-DfjJMVhwH_8-unsplash-300x201.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/austin-distel-DfjJMVhwH_8-unsplash-768x514.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/austin-distel-DfjJMVhwH_8-unsplash-1536x1027.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/austin-distel-DfjJMVhwH_8-unsplash-scaled.jpg 2048w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption>Photo by&nbsp;<a href="https://unsplash.com/@austindistel?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Austin Distel</a>&nbsp;on&nbsp;<a href="https://unsplash.com/s/photos/invest?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Unsplash</a></figcaption></figure>



A lump sum investment is a single contribution investment which enters the market at a specific date and at that specific price in the market. Lump sum investing is often not possible for everyone as most people are building wealth via monthly savings using their disposable income, but if for example a cash lump sum was received from the sale of an asset or an inheritance this would give you the option to invest from a lump sum perspective.&nbsp;



A lump sum investment can work well in times of a major market downturn, in various “market crashes” over the past have we seen people benefit from “buying at the bottom” and therefore making a larger capital gain. Although there is a very prevalent saying in personal financial planning which is “it&#8217;s not about timing the market, but time spent in the market” , many have used the opportunity of market crashes to their advantage.&nbsp;



A more achievable and popular method of investing for the long term is to make use of “cost-averaging” , and what this means is disciplined monthly contributions over a long period of time regardless of what state the market is in, by doing so you are buying “units” or “shares” at different prices resulting in an average price over the long run.&nbsp;



“When most people start to panic when there is a market downturn, this is actually the absolute best time for you to have monthly amounts buying units” says Van der Merwe. This long term investment strategy involves spreading your contributions over many months and many years.&nbsp;



Cost averaging can also help you deal with the turbulent markets where if you had perhaps placed a lump sum and the market crashed by say 30%, it would not affect you so badly at least from an appearance point of view. While cost averaging helps mitigate the risk if the market collapses it could also minimise potential reward. Therefore cost averaging is not a strategy to maximize an investment return but it is generally deemed safer and more manageable than a lump sum investment.



In an ideal world to really maximise the potential of your long term wealth creation, a disciplined plan involving a budget with allocated savings towards short, medium and long term investments is extremely important, if you are in the position to invest lump sums throughout your life it may be an option to “phase in” over time, perhaps releasing 25% of the lump sum every quarter, or if an opportunities arises and the market crashes, it could be your opportunity to pick up some cheap units that can benefit you at the finish line.



We hope that you enjoyed this article on the concept of lump sum investing and cost-average investing!



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Lump sum vs cost-average investing

This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin – The Financial School of Real Life.&nbsp;CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.



<div class="wp-block-image is-style-rounded"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="820" height="547" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/02/albert-s-FkNfVgHVzkI-unsplash-820x547.jpg" alt="" class="wp-image-396897" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/02/albert-s-FkNfVgHVzkI-unsplash-820x547.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/albert-s-FkNfVgHVzkI-unsplash-300x200.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/albert-s-FkNfVgHVzkI-unsplash-768x512.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/albert-s-FkNfVgHVzkI-unsplash-1536x1024.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/albert-s-FkNfVgHVzkI-unsplash-scaled.jpg 2048w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption>Photo by&nbsp;<a href="https://unsplash.com/@albert_s?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Albert S</a>&nbsp;on&nbsp;<a href="https://unsplash.com/s/photos/cappucino?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Unsplash</a></figcaption></figure></div>



I am guessing that you (like most people) enjoy frequent coffee’s on the run, on the way to work, on your lunch break or with friends, I mean, that milky cappuccino can get us going and can be enjoyed more conveniently than ever. As I am sure you have also realized the cost of our daily guilty pleasure continues to rise with inflation as with most of our goods every year.&nbsp;



We did an experiment and realized that this daily purchase albeit delicious could cost you R1 million at retirement!



You see, with many of the small daily pleasures that we usually don’t bat an eyelash at, we never feel guilty for these small purchases, but what if you decided to cut this daily pleasure down to say twice a week instead of seven. Let’s work on R25 for a cup of coffee, and let’s assume that you had one everyday making it a total of R150 a week. R150 a week multiplied by 4 weeks equals a whopping R600 a month! This amount is usually double what a minimum recurring investment amount is per month across most financial institutions.



We don’t realize how these small purchases often add up because they seem exactly that, small! But what we wanted to experiment with was just how much such a simple expense could mean literally a million rand more at retirement for just cutting out 5 of the 7 coffees you have weekly. You might be thinking&#8230; there is no way I would give up my daily coffee or how would that be worth a million rand but let’s consider and get down to real calculations to see just how much more wealth we could accumulate over the long run!



If you were to use the example above and save R600 a month for 25 years with an annual increase of 5%, assuming you are invested and are receiving a return of 10% per year, your capital amount at completion would be a staggering R 1,129,813.84



You see it&#8217;s not about saving that money but more so allowing the power of compound interest to work in your favour.



Interest isn’t the most attractive subject matter as so many people immediately think of debt! But having a good grasp on what compound interest is, and how it can boost your wealth, is something we think everyone needs to know: it’s looking out for your future financial self and there is no better time to start making use of compound interest than TODAY! Even the famous Albert Einstein believed that “compound interest is the eighth wonder of the world!”



<div class="wp-block-image is-style-rounded"><figure class="aligncenter size-large is-resized"><img loading="lazy" decoding="async" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/02/taton-moise-zWQ7zsBr5WU-unsplash-820x547.jpg" alt="" class="wp-image-396898" width="446" height="297" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/02/taton-moise-zWQ7zsBr5WU-unsplash-820x547.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/taton-moise-zWQ7zsBr5WU-unsplash-300x200.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/taton-moise-zWQ7zsBr5WU-unsplash-768x512.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/taton-moise-zWQ7zsBr5WU-unsplash-1536x1024.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/taton-moise-zWQ7zsBr5WU-unsplash-scaled.jpg 2048w" sizes="auto, (max-width: 446px) 100vw, 446px" /><figcaption>Photo by&nbsp;<a href="https://unsplash.com/@moyse?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Taton Moïse</a>&nbsp;on&nbsp;<a href="https://unsplash.com/s/photos/albert-einstein?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Unsplash</a></figcaption></figure></div>



Compound interest is basically interest on interest. You make an initial contribution into something like a mutual fund/unit trust account. You earn interest and it’s added to your initial contribution. Then, you start earning interest on both your initial contribution and the interest you’ve been paid. The cycle continues and this becomes an ongoing, compounding amount which dramatically grows over time!



We would like to encourage you to try the Cappuccino challenge or whatever your guilty pleasure might be for the remainder of this year, and see just how much money you not only save but by placing it into an interest bearing investment what that could be worth over time.



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The R1 million cappuccino (The Power of Compound Interest!)

This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin – The Financial School of Real Life.&nbsp;CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.







<figure class="wp-block-image size-large is-resized"><img loading="lazy" decoding="async" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/02/F95B979B-61DA-47C2-8146-03AEC2E611A9-820x547.jpeg" alt="" class="wp-image-396800" width="579" height="385" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/02/F95B979B-61DA-47C2-8146-03AEC2E611A9-820x547.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/F95B979B-61DA-47C2-8146-03AEC2E611A9-300x200.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/F95B979B-61DA-47C2-8146-03AEC2E611A9-768x512.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/F95B979B-61DA-47C2-8146-03AEC2E611A9-1536x1024.jpeg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/F95B979B-61DA-47C2-8146-03AEC2E611A9-scaled.jpeg 2048w" sizes="auto, (max-width: 579px) 100vw, 579px" /><figcaption>Photo by&nbsp;<a href="https://unsplash.com/@rupixen?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">rupixen.com</a>&nbsp;on&nbsp;<a href="https://unsplash.com/s/photos/credit-card-online-shopping?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Unsplash</a></figcaption></figure>



Keeping your debt at a manageable level is one of the most critical factors when it comes to a good sound financial plan and future.&nbsp;



How can you tell when your debt amount is starting to become worrisome? Fortunately, there’s a way to estimate your indebtedness without waiting until you realize you can’t afford to repay your debt obligations or your credit score starts to fall which can be dire to your ability to obtain future credit. This is called your debt to income ratio.



What is the debt-to-income ratio?



This ratio compares your monthly debt expenses to your monthly gross income and this comes out as a percentage. To calculate your debt-to-income ratio, add up all the payments you make toward your debt during a month. That includes your monthly credit card payments, car loans, other debts (for example student loans , investment loans) and housing expenses ,either rent or the costs for your mortgage principal debt amount, plus the interest, property taxes and insurance and any homeowner association fees.



Your next step is to divide your monthly debt payments by your monthly gross income, your gross income before taxes are deducted, to get your ratio. (Multiply your ratio by 100 to get to a percentage)



For example, if you pay $300 on credit cards, $300 on car loans and $1,200 in rent, your total monthly debt commitment is $1,800. If you make $50,000 a year, your monthly gross income is $78,000 divided by 12 months, or $6,500. Your debt-to-income ratio is $1,800 divided by $6,500, which works out to 0.27, or 27%



Banks research how much debt a client can take on before they are likely to start having financial difficulties, and they use this knowledge to set lending amounts and interest rates. While an average maximum debt to income ratio varies from lender to lender, it’s average is usually around 36%.



How to lower your debt-to-income ratio



If your debt-to-income ratio is higher than 36%, you may want to consider taking steps to bring this number down. To do so, you could do the following:



<ul class="wp-block-list"><li>Avoid taking on additional debt. Urgently consider reducing the amount you spend on your credit cards, and try to postpone applying for additional loans until you better your personal ratio.</li></ul>



<ul class="wp-block-list"><li>Delay large purchases that require you to take a loan so you’re using less credit. If you have a longer time to save your disposable income it means you can make a larger deposit when you do indeed purchase. You’ll have to fund less of the purchase with taking a bond/mortgage, which can help keep your personal debt-to-income ratio low.</li></ul>



<ul class="wp-block-list"><li>Increase your monthly amounts that you pay in to these debts. Extra payments can help lower your overall debt more quickly. Generally you want to first settle the debt with the highest interest rate first.</li></ul>



Recalculate your debt-to-income ratio on a monthly basis to see if you’re making progress.&nbsp;



Keeping up to date with your debt to income ratio can help you stay motivated to keep your debt manageable and below the 36% “danger zone”



Keeping your debt-to-income ratio below this “danger zone” will help ensure that you can afford your debt repayments and give you peace of mind that you are handling your finances in a mature manner. It can also aid you in being more eligible for future credit or for loans.



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What is your debt to income ratio?

This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin – The Financial School of Real Life.&nbsp;CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.



Let’s discuss what an ETF is and how it has become such a popular investment especially in the last decade.



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="615" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/02/B91CFEE0-713A-4FB5-9FFA-29172BBCDB05-820x615.jpeg" alt="" class="wp-image-396765" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/02/B91CFEE0-713A-4FB5-9FFA-29172BBCDB05-820x615.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/B91CFEE0-713A-4FB5-9FFA-29172BBCDB05-300x225.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/B91CFEE0-713A-4FB5-9FFA-29172BBCDB05-768x576.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/B91CFEE0-713A-4FB5-9FFA-29172BBCDB05-1536x1152.jpeg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/B91CFEE0-713A-4FB5-9FFA-29172BBCDB05-scaled.jpeg 2048w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption>Photo by&nbsp;<a href="https://unsplash.com/@jamie452?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Jamie Street</a>&nbsp;on&nbsp;<a href="https://unsplash.com/s/photos/exchange?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Unsplash</a></figcaption></figure>



An exchange traded fund is an investment that is traded on an exchange just like stocks are. The price of an ETF will change throughout the day as the shares are bought and sold on the market. This is unlike collective investments or mutual funds, which are not traded on an exchange, and trade only once per day after the markets close. The dramatic rise in popularity of the ETF is mainly due to how cost-effective and liquid they are compared to mutual funds. Because of the diversification and amount of ETFs available , it also is a fantastic tool to build a custom investment portfolio.



An ETF is a type of fund that holds multiple underlying assets, rather than only one like a specific stock. There&nbsp; can be multiple assets within an ETF, and therefore they can be a popular choice for diversification. An ETF can own tons of stocks across various industries or sectors, or it could simply be related to one particular industry or sector. Some funds focus on only African offerings, while others have a global outlook. For example, a popular ETF has always been the MSCI world index.



ETF investing can also be known as index investing or passive investing as the fund managers of index funds simply buy exposure to the stocks in the market index, a basket of different companies with the biggest companies by market capitalization.



Examples of market indices are the JSE ALL AFRICA Share index or the S&amp;P 500 share index. Index tracking funds generally charge low fees and portfolios earn market returns rather than attempting to outperform the market such as a managed fund where a fund manager is in charge and sets a benchmark that they strive to achieve.



<h2 class="wp-block-heading">What are the advantages of investing in ETF’s</h2>



Flexible:



ETFs provide exposures to suit a variety of different investment beliefs or strategies.



Traditionally low in fee’s:



ETFs most of the time have lower investment fees than active funds and the costs are easier to calculate.



Diversified options:



ETFs offer the ability of instant exposure to returns from diverse securities or sectors.



Transparency:



ETFs always show exactly what the fund holds



Liquidity:



ETFs are listed on investment exchanges and can be traded at any time during market hours



Access:



ETFs allow instant access to global markets







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Want to buy stocks but you’re new to investing? An ETF might be your best bet to get started!

This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin &#8211; The Financial School of Real Life. CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.



No matter what your background or your age, there are a few universal wealth building principles that have been tried and tested over the decades. It does not matter if you are in your 20’s or in your 50’s, these principles can be applied and are sure to assist you in your wealth creation journey.



The 6 steps listed below will enable you to build a more prosperous financial future! Lets do this :



1.Keep your expenses low for as long as possible



Our world is built vastly on status and image, that combined with credit being offered in abundance often leading us to buying things we do not need to impress people we do not know! Can you imagine if you threw that concept out the window and instead focused on only your ‘needs’ combined with savings instead of only your ‘needs’ and then unnecessary ‘wants’?



2.Getting out of bad debt



Whilst no real debt can be considered truly ‘good debt’ there is most certainly debt that you can leverage in order to benefit from, it is important to at all costs try to eliminate debt over the long run.



3.Do your best to save 15-20% of your income to long term investments



The rule of thumb for retirement investing has always been to try to allocate 15% of your monthly income to retirement, if you can extend that to 20% it can assure you to an even better situation at retirement. Perhaps it is not possible to do either at this moment in time, but remember ANYTHING IS BETTER THAN NOTHING, let compound interest start working in your favor.



4. Having an Emergency Fund



Whether it’s retrenchment , a car accident or something else completely unexpected, one of the most important aspects to building wealth is to be adequately prepared via having at least three months of your income saved up in an interest bearing account, preferably six months of your income. Do your best to not access this unless there is a real emergency.



5. Be careful to not over-insure yourself



Whilst we should always have the relevant insurance to match our lifestyles through various phases of life it is important to review your insured amounts and the premiums. Other factors to carefully consider when it comes to insurance is the premium patterns (how much does it go up each year) and the term of your cover (when does the cover expire)



6. Paying off your property early



Chipping away at your mortgage and bringing those monthly payments down are a great way to minimise debt and to free up more disposable income. Just imagine not having that monthly payment each month!



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="543" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/01/439556E7-7047-48D4-9835-C3DAA4447BC2-820x543.jpeg" alt="" class="wp-image-396153" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/01/439556E7-7047-48D4-9835-C3DAA4447BC2-820x543.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/439556E7-7047-48D4-9835-C3DAA4447BC2-300x199.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/439556E7-7047-48D4-9835-C3DAA4447BC2-768x509.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/439556E7-7047-48D4-9835-C3DAA4447BC2-1536x1017.jpeg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/439556E7-7047-48D4-9835-C3DAA4447BC2-scaled.jpeg 2048w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption>Photo by&nbsp;<a href="https://www.pexels.com/@goumbik?utm_content=attributionCopyText&amp;utm_medium=referral&amp;utm_source=pexels">Lukas</a>&nbsp;from&nbsp;<a href="https://www.pexels.com/photo/person-holding-blue-ballpoint-pen-on-white-notebook-669610/?utm_content=attributionCopyText&amp;utm_medium=referral&amp;utm_source=pexels">Pexels</a></figcaption></figure>



Whether you like it or not retirement is coming and it is important that you acknowledge that fact as well as your financial habits and start making the necessary changes to building wealth. How prepared you will be completely depends on you! Learn to educate yourself financially and be disciplined in your wealth creation efforts.



<figure class="wp-block-image size-large"><a href="https://pocketfin.co.za/courses/" target="_blank" rel="noopener"><img loading="lazy" decoding="async" width="820" height="320" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x-820x320.jpg" alt="PocketFin - Financial School of Real Life" class="wp-image-396243" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x-820x320.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x-300x117.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x-768x300.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x-1536x599.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x.jpg 1640w" sizes="auto, (max-width: 820px) 100vw, 820px" /></a></figure>

439556E7-7047-48D4-9835-C3DAA4447BC2

Six important steps to building proper wealth

This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin &#8211; The Financial School of Real Life.CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.



The Best Time to Start Was Yesterday!



The famous Albert Einstein said: “compound interest is the eighth wonder of the world”! How does getting an early start to investing mean so much more at retirement?&nbsp;



The foundation behind compounding interest is the concept of the time value of money, which states that the value of money changes depending upon when it is received. Having for example R1000 today is better than receiving it in a years&#8217; time from now because you can invest it to generate dividends and interest income. Compounding interest allows that money to grow.&nbsp;



Opportunity cost is the loss of possible gains if an action is not chosen—in this case, the amount of money you do not receive if you take no action with it or as another example decide to leave funds you do not need in a savings account that does not generate interest. If you did not invest the R1000, you have lost the opportunity to earn interest that you could have gained. The example below from PocketFin’s course on Long term investing reflects the power of compound interest and how starting sooner than later can give you such a dramatic head start.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh3.googleusercontent.com/wTrwpBetyd1m-i6uCTYrM9O-Iaf_J7LzkWklrihXmsiet4cv0EnjdWV8mHcwYd0bcapKcnGHUjeW84Esxw6_KpcyNH6kYDqD405uwpTFvF1IOwJ9RorL5-8zz4tk1WicCCevsDRm" alt="" /><figcaption><a href="https://pocketfin.co.za/" target="_blank" rel="noreferrer noopener">www.pocketfin.co.za</a></figcaption></figure>



In the above image we can see that Debbie started saving at the age 22 and stopped at the age 27 and let her funds compound until age 60, unfortunately for Dave he only started saving at age 28 and has to save all the way until age 60 and they bother each the same amount. Who would you rather be? We definitely want to be Debbie!&nbsp;



This is such a simple financial lesson and it can seriously make a world of difference to you and all those around you. Making people aware of compound interest and encouraging people to start investing from as young as possible ensures you reap the best results with regards to the compound effect! When you understand the time value of money, you&#8217;ll see that compound interest and patience are the ingredients for wealth.



<figure class="wp-block-image size-large"><a href="https://pocketfin.co.za/" target="_blank" rel="noopener"><img loading="lazy" decoding="async" width="820" height="320" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-White-2x-820x320.jpg" alt="" class="wp-image-396247" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-White-2x-820x320.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-White-2x-300x117.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-White-2x-768x300.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-White-2x-1536x599.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-White-2x.jpg 1640w" sizes="auto, (max-width: 820px) 100vw, 820px" /></a></figure>

Debbie and Dave – Compound Interest

The marvellous power of compound interest

This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin &#8211; The Financial School of Real Life. CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.



Financial planning has become more important than ever throughout 2020/2021 and the Covid-19 Pandemic. With fragile economies, a big financial illiteracy rate and exorbitant debt levels, what can we do to take our financial future’ more seriously? How can we adapt to the new normal and what can we do to pave a more prosperous financial future?



Many often make the mistake to think that financial planning is only for the wealthy but financial planning can help individuals at any income level, at any age and of any country.



You are also never too young or too old to start financial planning because using a plan will help you to avoid or stop making financial mistakes.



<figure class="wp-block-image size-large is-resized"><img loading="lazy" decoding="async" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/01/46EB3230-F9D8-49D8-BACF-068AE641AF80-820x543.jpeg" alt="" class="wp-image-396122" width="580" height="384" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/01/46EB3230-F9D8-49D8-BACF-068AE641AF80-820x543.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/46EB3230-F9D8-49D8-BACF-068AE641AF80-300x199.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/46EB3230-F9D8-49D8-BACF-068AE641AF80-768x509.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/46EB3230-F9D8-49D8-BACF-068AE641AF80-1536x1017.jpeg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/46EB3230-F9D8-49D8-BACF-068AE641AF80-scaled.jpeg 2048w" sizes="auto, (max-width: 580px) 100vw, 580px" /><figcaption>Photo by&nbsp;<a href="https://unsplash.com/@adeolueletu?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Adeolu Eletu</a>&nbsp;on&nbsp;<a href="https://unsplash.com/s/photos/financial-planning?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Unsplash</a></figcaption></figure>



In this article we will discuss the basic steps of financial planning, demystifying the complex world of the financial planning process and hopefully it will inspire you to start your own financial planning journey.



A comprehensive financial plan will include everything from investments, planning for retirement, children’s education, your emergency fund and assets such as property; insurance needs and other financial goals, remember we are all individuals and our goals or financial vision can be drastically different! Financial planning however can be made simple by sticking to guidelines and reviewing your plan and financial situation often.



<h2 class="wp-block-heading">There are six basic steps in a financial plan</h2>



Step 1



Establish your financial goals in life – short, medium and long term (eg 5 years. 15 years, 30 years) , these should be written down on a piece of paper or in your very own financial planning journal/notepad.



Step 2



Gather information, this includes your income and expenses, create a budget,work out what assets and liabilities you have.&nbsp;



Step 3



Evaluate your current financial position – how close are you to achieving your goals? How do you feel about where you are and where you want to be? What shaped the attitudes you have towards your finances? How do you wish to change?



Step 4



Develop a plan – create a road map for achieving your different financial goals, this step should also include educating yourself and upping your financial literacy, as through this you will be more motivated and knowledgeable. As you strive to take your financial future more seriously, stay close to resources such as our articles or our financial education school, PocketFin.



Step 5



Implement your plan – make the changes and make it happen, this may be finally taking that insurance you’ve been putting off, spending less money on take-outs and buying shares or other investments. Once you have set your goals stick to your plan at all costs!



Step 6



Monitor and review your plan at least yearly and make adjustments when needed , we would also urge you to review your budget twice a year. Print your bank statements and comb through your expenses, make sure that you are sticking to your principles.



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="547" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/01/8B76FF04-678A-4ABB-8FD3-16E0D779A5E8-820x547.jpeg" alt="" class="wp-image-396126" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/01/8B76FF04-678A-4ABB-8FD3-16E0D779A5E8-820x547.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/8B76FF04-678A-4ABB-8FD3-16E0D779A5E8-300x200.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/8B76FF04-678A-4ABB-8FD3-16E0D779A5E8-768x512.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/8B76FF04-678A-4ABB-8FD3-16E0D779A5E8-1536x1024.jpeg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/8B76FF04-678A-4ABB-8FD3-16E0D779A5E8-scaled.jpeg 2048w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption>Photo by&nbsp;<a href="https://unsplash.com/@photoripey?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Ibrahim Rifath</a>&nbsp;on&nbsp;<a href="https://unsplash.com/s/photos/finance?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Unsplash</a></figcaption></figure>



<h2 class="wp-block-heading">How to start</h2>



Financial planning is a journey, and as seen above the steps of taking this aspect of your life seriously can not only be positive for yourself and your future , but also those around you.&nbsp;



We believe that becoming financially literate is step one to building a prosperous financial future. By simplifying the world of finance and economics it enables you to understand what you should do with your income, your expenses and how to stay on top of reaching your financial goals. We hope that this article inspires you to start paving your way to financial success and cannot wait to watch you grow.



<figure class="wp-block-image size-large"><a href="https://pocketfin.co.za/about/" target="_blank" rel="noopener"><img loading="lazy" decoding="async" width="820" height="320" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x-820x320.jpg" alt="" class="wp-image-396243" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x-820x320.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x-300x117.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x-768x300.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x-1536x599.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x.jpg 1640w" sizes="auto, (max-width: 820px) 100vw, 820px" /></a></figure>

Financial Education

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The R1 million cappuccino (The Power of Compound Interest!)

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Six important steps to building proper wealth

The marvellous power of compound interest

How to build a successful financial plan

News Tips

Advertise With Us

Financial Education

Lump sum vs cost-average investing

The R1 million cappuccino (The Power of Compound Interest!)

What is your debt to income ratio?

Want to buy stocks but you’re new to investing? An ETF might be your best bet to get started!

Six important steps to building proper wealth

The marvellous power of compound interest

How to build a successful financial plan

News Tips

Advertise With Us

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