Firstly, living hand-to-mouth or having no savings creates stress at any level of income. It keeps you in a state of anxiety or “fight or flight”. The first rule of thumb when it comes to saving and investing is therefore to create what can be called an emergency or a rainy day fund. Financial emergencies happen; your car breaks down, your family or animals get sick, phones and computers break or you lose your job. However, having a short-term savings buffer can also be a positive, and can also be called an opportunity fund. This allows you the flexibility to resign from a job that is not serving you or to start your own business. We would therefore like to reframe this starting step of investing as creating a financial shield, a buffer or safety net that means if something unplanned happens, you feel safe.
This safety allows you to move from a place of anxiety, fight or flight to a relaxed physiological state, which means you have more energy to be used towards creating your goals or dreams.
A financial shield would typically be at least three to six months’ salary saved. It’s okay to start small and work your way up. The more vulnerable you are, the more this should be. It’s important that this investment is low risk and liquid as you may need it at any time. Low risk means the value of this investment should not move up and down often. Liquid means you can draw from it within 24 hours if you need it.
A good financial habit tip – start a debit order to allocate to this fund as soon as you are paid or if you are an entrepreneur, pay this fund first. Reframe income as what is left after saving.
A good investment choice for this starting goal in our range would be the Investec BCI Active Income Fund of Funds. This is a low risk, diversified cash solution for those seeking to maximize income returns. Ideally it will optimise your Shield savings and provide a return that is better than cash.
At this point it is useful to explain diversification as a term. Diversification means not “having all your eggs in one basket”. The Investec BCI Active Income Fund of Funds invests your savings in many different cash or income investments, which is different to having all your shield savings in your bank account. It is also diversified by fund manager – we partner with the finest cash or income managers for you to find opportunities to maximise your low risk savings. It is a good investment parking place, for investors looking to outperform cash but that still require liquidity.