Early last year I bought a piggy bank (or as we call it in the hood, “isketekete”). The one I got is impossible to open unless you cut it open. I put in my change from buying at the shops and toll gates etc. Every month I would put R100 as a standard. This was initially my December plan. Whatever that was going to come out of there was my December budget. I had no vacation planned at the time so I knew I would not need much to drink throughout December. In October my car broke down and other family stuff that needed money. Before I knew it I didn’t have a money for petrol to go to work. I decided to feel how heavy that tin actually is and I was pleasantly surprised. That night I fought the temptation to cut open the tin. That money was earmarked for a specific purpose (mental accounting). A few days later I couldn’t find money to get through the two weeks before payday, so I decided to cut it open. To my surprise my “spare change” amounted to just over R1,500, with which I was able to get through the month.
From this exercise I learnt how useful savings is. Just like insurance, it’s almost impossible to see the results until you actually need it. It also reminded me how seemingly small contributions eventually add up. Even dividends start small, but as you continue being invested and reinvest the dividends, they start to add up too. When I received my very first dividends it was a few cents from each of ETFs I held. It added up to a few rands. But as I add contributions into the ETFs, those dividends start to add up even more.
I’m starting to get to a point where I receive enough dividends to buy one full ETF unit. I know that at some point the dividends will be as much as my contributions each month, to as much I would contribute for the year. For instance, assuming 2% dividend yield on the TFSA portfolio, a R1.65m portfolio will give you R33 000, which is the max amount you can contribute on a TFSA. I will get an extra year’s worth of contributions for free, which won’t count towards my lifetime limit. At R3.3m, I will get 2 years’ worth of contributions and so on and so forth, to a point where the dividends will provide enough to pay for my living expenses.
Of course, I understand that this is a slow process. That’s why it is very important to have a long-term view. But to Simon’s point, focusing on the habit, what seems like a small start will eventually add up.
Njabulo Nsibande is a Just One Lap user-turned-contributor. His “Cash Club” blog details his experiences balancing the financial obligations of a young parent with his investment aspirations.
Njabulo is a founding member of an investment club. In this blog he shares his experiences trying to work out the intricacies of collective investment in the true sense of the word.
Follow Njabulo’s journey here every month.
Find him on Twitter: @njab_soul.
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