Successfully building a legacy for our loved ones hinges on the strategies we put in place to achieve our financial goals. In the second of a two-part Zoom webinar, Phiko Peter joined his colleagues, Nomi Bodlani and Tamryn Lamb, for an insightful panel discussion hosted by Noluyolo Betela. Watch a recording and read a summary of the key takeouts below.
1. Determine what ‘building a legacy’ means to you
Building a legacy is a deeply personal exercise that should be shaped by your own values and circumstances: You may want to ensure that your kids have access to a brilliant education, leave your loved ones with a substantial nest egg or make a lasting impact on your community.
2. Set clear goals
Many investors fall short of achieving their goals because they don’t have a solid plan in place. Once you have established the kind of legacy you would like to build, you should set clear goals that support it. You should then put a practical plan in place to achieve these goals.
By way of example, you may want to save for your children’s education: You will need to start by establishing how much money you would need to save and how much time you have to save it. You should then draw up a budget to ensure that you allocate enough money towards this goal on a regular basis.
3. Bring your family into the conversation
We often avoid talking about money with our loved ones. Balancing our long-term goals with the needs and wants of our family can be incredibly challenging, particularly when you don’t have a plan. Once you have a plan in place, it is important to bring your loved ones into the conversation so that they can be aware of your goals and understand your financial limitations.
It is also important to build sufficient emergency savings so that you don’t have to abandon your plan when life happens, and you need to step in.
4. Make sure compound interest works for you
Understanding how compound interest works and how you can use it to your advantage can greatly improve your financial outcomes.
If you take on a lot of debt to fund your day-to-day expenses, you will soon find yourself paying a lot of interest. This interest can compound and work against you. Conversely, if you invest your money and earn interest, over time, you will find that this interest starts earning interest – exponentially growing your investment and helping you achieve your financial goals.
5. Be aware of lifestyle creep
As we progress through our careers and earn more money, we are naturally inclined to increase our expenses and take on greater financial obligations. Try to make sure that your lifestyle-related expenses do not increase at the same pace as your income. This will help you to accumulate wealth as you get older and approach your peak earning years.
6. Think like an investor
When you are building a legacy, you need to shift your mindset from saving to investing. You are not just putting money aside; you are putting your money to work.
As an investor, you should think carefully about what you are trying to achieve, how much risk you are taking on and how you are diversifying your investments. You don’t want to put all of your investments in one asset class, you want to spread them across various different types of assets that might go up or down at different times and carry different types of risks.
This shift also requires you to be honest about your own behavioural biases when it comes to money. An independent financial adviser can help you identify your biases, put together a plan, manage your risk and diversification, and help you stay the course so that you realise your goals.
7. Building a legacy is a long-term endeavour
Investors often try to time markets in a bid to boost their returns over the short term. We tend to overestimate our ability to perfectly time the markets and this can have a negative impact on our returns.
Maintaining a long-term perspective and adopting a consistent approach can help you avoid waiting for the best time to invest or divest. When thinking about your investments, you should always focus on your long-term goal and whether where you are putting your hard-earned savings is going to help you reach that goal.