“A salary increase is the perfect opportunity to begin saving,” says Johns. “Before adjusting your lifestyle or making any big purchases, consider setting aside a portion of your raise towards a monthly recurring investment.”
Image: File picture: James White
Many South Africans believe they need significant capital to begin investing. However, according to Haydn Johns, Head of PSG Life and PSG Invest at PSG Wealth, the key is to start with what you have and remain consistent.
“One of the biggest mistakes new investors make is believing their contributions are too small to matter,” says Johns. “Don’t underestimate how powerful the compounding effect of returns is. Even small amounts, when invested consistently, can have a significant impact over time.”
He adds that most people struggling to save have a spending problem, not an income problem. “The trick to overcoming this is to establish the habit of saving first and spending what is left over, rather than the other way around.”
According to BankservAfrica’s Take-home Pay Index, South Africans’ average nominal take-home pay rose 16.3% year-on-year in January 2025.
Even when accounting for inflation, real take-home pay increased by 12.8%.
“A salary increase is the perfect opportunity to begin saving,” says Johns. “Before adjusting your lifestyle or making any big purchases, consider setting aside a portion of your raise towards a monthly recurring investment.”
Practical steps to get started
Johns advises new investors to start with a budget: “A budget highlights unnecessary expenses that can be cut to free up money for investments.” While a good target is to invest 15-20% of gross monthly income, he stresses that the most important thing is to start – regardless of the amount.
Building a reserve fund is also important. “Aim to have at least three months’ worth of expenses in a cash-type investment vehicle that allows quick access, ideally within two to three days. This provides flexibility in case of unexpected financial needs.”
To maximise returns, Johns suggests taking advantage of tax-efficient investment products. “Max out your retirement fund contributions, which are capped at 27.5% of income. The tax savings generated can then be used to fund a tax-free investment, which has an annual contribution limit of R36 000.”
Selecting the right investment structure is also critical. “For young investors with a long investment horizon – 20 years or more – it’s important to opt for funds with a higher equity allocation, as these offer higher potential returns which are needed in order to reach your retirement goals.”
Johns recommends starting with a diversified unit trust portfolio within a tax-efficient investment vehicle, such as a retirement annuity or tax-free investment account. “This ensures investors benefit from tax advantages, effectively increasing their net income when the tax benefits are factored in.”
Common mistakes to avoid
First-time investors often fall into the trap of chasing “get rich quick” schemes. “The risk associated with these schemes is extremely high, and many scams prey on young investors looking for quick returns,” warns Johns.
Instead, he advises a disciplined approach focussed on long term growth. “Investing is about consistency and patience. Don’t underestimate the power of compounding – achieving 10-15% per year in compounded returns can make a significant difference over time,” he concludes.
PERSONAL FINANCE