Implementing the two-pot system might seem challenging at first, but following these steps can make the process straightforward and effective. Below are guidelines to consider when you are planning your retirement.
1. Assess your income and expenses
● Begin by creating a detailed budget to understand your monthly cash flow.
● Identify needs (like rent, utilities, groceries) and wants (like entertainment).
● This will help you determine how much you can realistically allocate to savings and investments.
2. Set clear savings goals
● Define your short-term goals (e.g. building an emergency fund, saving for a holiday) and your long-term goals (e.g. retirement, saving for your children's future).
● Create a timeline for each goal to give you a clear target and motivation to stay on track.
3. Allocate funds using the 50/30/20 rule
● 50% of your income goes to needs.
● 30% of your income goes to wants.
● 20% of your income goes to savings and investments, with the idea of splitting this between your two pots:
- 10% to your short-term savings pot.
- 10% to your long-term investment pot.
4. Automate your savings
● Set up automatic transfers from your bank account to your short- and long-term investments.
● Automated debit orders ensure you stay disciplined and prioritise saving, even in busy or financially tight months.
5. Select appropriate investment options
● For your short-term pot, focus on liquidity and security. Consider options like:
- High-yielding savings accounts: They are easy to access and offer higher interest rates than regular savings accounts.
● For your long-term pot aim for growth. Consider investments such as:
- Stocks: Equities offer the highest potential for growth over time.
- Bonds: A more stable investment to balance the risk of stocks.
- ETFs: Diversified portfolios that reduce risk while providing long-term growth.
6. Regularly review and adjust
● Adjust your contributions to your pots as your income grows or your goals evolve.
● Draining your short-term pot for non-essential expenses: The short-term pot should only be used for emergencies or desired short-term goals. Avoid using it for impulse purchases or everyday spending.
● Ignoring your long-term pot during market downturns: Pulling out of long-term investments can be tempting during market volatility. Remember that staying invested through market cycles is crucial to capturing long-term growth.
● Overfunding one pot and neglecting the other: Make sure you maintain a balance. Overfunding your short-term pot means missing out on potential investment growth while neglecting it could leave you unprepared for emergencies.
● Increase contributions gradually: As you receive pay raises or bonuses, consider increasing your contributions to both pots. Even a small percentage can have a big impact over time.
● Reinvest gains: Reinvest dividends to accelerate growth for your long-term pot through compounding interest.
● Diversify investments: Diversification and trends are your best friends. They reduce risk by spreading investments across different assets in your long-term pot.
The two-pot system is not just a strategy. It’s a mindset shift that gives you an edge to take charge of your financial future with clarity and purpose. Clear goals, automating your savings, and regularly reviewing your portfolio creates a balanced approach that supports your financial needs.
Disclaimer:
*Any opinions, views, analysis or other information provided in this article is provided by BCS Markets SA trading as BROKSTOCK as general market commentary and should not be viewed as advice according to the FAIS Act of 2002. BCS Markets SA does not warrant the correctness, accuracy, timeliness, reliability or completeness of any information provided by third parties. You must rely upon your judgement in all aspects of your investment decisions and all decisions are made at your own risk. BCS Markets SA and any of its employees shall not be responsible for and will not accept any liability for any direct or indirect loss including without limitation any loss of profit which may arise directly or indirectly from use of the market commentary. The content contained within the article is subject to change at any time without notice. BCS Markets SA is an authorised financial services provider FSP No. 51404.
** This article was prepared by BROKSTOCK analyst Maboko Seabi
