How to build wealth in 2024

Building wealth may be difficult in 2024’s tough global economy, but it is still possible to maintain investment growth with the right strategies. 

This is according to Nedbank, which said via its blog that conflict and political uncertainty have made the global economy unstable and difficult to predict. 

“South Africans are faced with a unique mixture of challenges, including our unemployment rate, a heavy tax burden, and urgent improvements needed in basic education, infrastructure, power supply and access to safe water sources,” the bank said.

However, the Government of National Unity’s formation has had a positive impact on investment and the currency.

“It’s harder to build wealth when times are tough, but if you develop a plan to do so, you’ll have more flexibility to maintain an optimum strategy when there’s an economic upturn,” Nedbank said. 

“Inflation rates can erode your savings if they aren’t invested wisely, currency fluctuations affect your buying power and investment opportunities, and higher interest rates can make borrowing and debt more expensive.”

“At the same time, of course, interest rate hikes offer better returns on your savings and investments.”

Even amid rising interest rates and declining economic opportunities, there are strategies that can help individuals build their wealth, which Nedbank outlined.

In the first place, Nedbank explained that it is essential to understand your cash flow and net worth. 

“Knowing where your money comes from, how much income you have, and what you’re spending it on, is key to making informed decisions about what to do with your money.”

To calculate your net worth, add up the value of your assets – such as your home, investment accounts, and bank balances – then subtract any liabilities like loans, credit card debt, or other outstanding payments.

“If the result isn’t a positive number, you have a negative net worth. If you’re serious about growing your wealth, you may need to make some significant lifestyle changes,” the bank said. 

“Remember, choices like the car you drive are lifestyle decisions, not investments.”

Regardless of whether your net worth is positive or negative, it’s essential to create a proper budget, adjust your cash flow, reduce debt, and invest in financial or physical assets to start building wealth.

Making saving an easy habit is an important strategy as well, Nedbank said. 

“Putting away even a small amount every month adds up over time, and many savings vehicles offer attractive incentives to save.” 

Experts at Morningstar have shown, for example, that even saving as little as R200 a month can build your wealth up to R1 million if you start early enough.

“A powerful way to make sure that you save consistently is to arrange debit orders from your salary into your savings and investment accounts every month,” Nedbank said.

“You’ll never have to remember to make deposits, and the money will come off your income before you can miss it every month, making it easier to stick to your savings goals.”

Deciding what to do with those savings is equally as important, though. 

Before anything else, it is essential to prioritise your emergency savings and your retirement. 

“Set up a savings account that you can access quickly as your emergency fund and a long-term retirement savings plan,” the bank explained.  

“The emergency fund is for unexpected expenses so that you don’t have to withdraw from longer-term investments or take on debt in an emergency, and your retirement savings need to provide for you when you stop working.”

Generally, experts recommend saving between three and six month’s worth of your after-tax income in an emergency fund.

For retirement, experts suggest that you need to be able to replace at least 75% of your final income at retirement age, which means you need to save anything from 12% to 17% of your income from the day you start working.

These routes also have the added benefit of being tax efficient since retirement contributions are tax deductible. 

Savings can also be put into a tax-free savings account, although it won’t be readily accessible. 

Once these two areas have been addressed, you can start looking at other long-term investment options. 

“Take any money you aren’t likely to need over the next few years and invest it for the long term – for example, in a well-diversified unit trust with a high proportion invested in shares,” Nedbank said.

This type of investment is expected to yield returns slightly above inflation over time, helping your money grow and creating wealth. 

“Diversifying your portfolio of savings and investment vehicles helps to smooth out economic uncertainty,” the bank said. 

“If you are thinking of investing or are invested in the stock market, a broad exposure to the market at a low cost – for example, a passive fund – is a less risky strategy than investing in a handful of shares.”

However, the best investment strategy will depend on each person’s unique personal circumstances.

To maximise long-term growth, reinvest your interest and dividends in the same account, leveraging the power of compound interest.

For South Africans seeking a more proactive approach to creating wealth, Nedbank advised taking the entrepreneurial route.

“With so few formal jobs available, the entrepreneurial route has its advantages, though it’s not for everyone. The risks of starting a business are high, but there is also great opportunity,” the bank said. 

If you have a business idea, consider factors like its long-term viability, the demand for your products or services, and the existing market competition. 

Thoroughly research the opportunities and challenges before launching your start-up, and seek professional advice.

“If you’ve already put a long-term financial plan in place, you may find that you don’t have to change much to adapt to a tougher financial environment,” Nedbank said. 

“The most important lesson is that in a weak economy with an uncertain outlook, you should have a plan to overcome short-term challenges and work towards getting back on track with your wealth creation plan.” 

“Often, this means being objective and not emotional about your lifestyle choices.”