Tips for sound financial management
JOBURG - Savings and investments senior manager at Standard Bank, Nolene Parboo, offered information on some basic financial concepts necessary to help in building a solid foundation for the financial future.
Parboo listed the six necessary concepts consumers needed to understand, starting with the concept of net worth. “Your net worth is an insightful measure of your financial health that can help you build and plan your financial future,” she said.
“Basically, your net worth is the result of your total assets minus the total amount of money you owe and this includes cash and investments, your home, cars or anything else of value.”
Another important concept Parboo mentioned was inflation, highlighting the negative impact it can have on savings. This is due to the fact that as prices rise, consumers are able to afford fewer products, especially if their income does not increase at the same rate.
Parboo added liquidity to the list, explaining it as the level of accessibility consumers have to their money. “Many people are in a situation where they are ‘asset rich, but cash poor’ because they have invested all their money in their homes; while it is a good idea to pay off your bond as soon as possible, everyone needs cash reserves,” she explained.
She urged consumers to have an investment portfolio consisting of money and fixed assets, stressing the importance of also having an emergency fund that is kept in a savings account.
Parboo concluded by advising consumers to take the time to understand as many concepts as possible, as this can make all the difference with regards to their financial future. “Once you understand the basic concepts, take the time to learn the more complicated ones [because] when it comes to optimising your wealth, the saying ‘knowledge is power’ really holds water,” she said.
Other concepts Parboo mentioned include:
- Bull and bear markets: A stock market that is on the rise, so if you have invested in shares you will benefit; while a bear market means that the stock market is declining and the economy is in a downward trend
- Risk tolerance: This refers to how comfortable you are with big upward or downward movements in the markets
- Time value of money: This refers to the impact that saving money for a long period of time has on the savings.
