Investing for the Future Without Money

Published on 7th October 2011

Many South Africans don't save, much less invest, enough to secure a financially independent future, for one simple reason: they believe they do not have enough money to do so. While hard cash may be a requirement for traditional savings and investments, there are alternative ways to save and invest with no cash in hand.

Many South Africans, simply trying to make ends meet each month, face what may seem to be a hopeless situation: they simply do not have money to save, much less invest, to secure a financially secure future, keeping them trapped in the month-to-month survival, seemingly forever.

"Because of the poor level of financial literacy in our country, people simply dismiss any possibility of saving or investing when they see that their budget is over-stretched. But there is hope and you can start to save and invest even when your monthly budget seems stretched to the limit," says Dr Koos du Toit, CEO of P3 Investment Group.

Dr du Toit explains that while you may not have hard cash to deposit into a savings account each month, there are alternative ways to start saving. "For example, after you have settled your debit orders and monthly payments, you can transfer the balance of your salary into your credit card or access bond. While you will still have access to this money to cover day-to-day expenses during the month, this money will also be working for you in another way “reducing the outstanding balance on the bond or credit card and thus reducing the interest charged on these accounts. The interest savings achieved are 'savings' in your credit card or bond account and have the same effect as small deposits of hard cash would have." These "savings" may not be big, but every little bit counts and gets the ball rolling.

Similarly, a lack of hard cash to invest does not mean it is impossible to do so. While an investment in traditional investment vehicles such as bonds, stocks or retirement annuities do require that you have hard cash in hand, this requirement does not hold true for all investments.   

"There is a fundamental financial principle called gearing, which is widely used by financially-savvy investors to overcome the challenge of not having enough hard cash to invest in a good opportunity," explains Dr Du Toit. "In plain English, gearing is simply using other people's money to invest. And there is no reason why only financially-savvy investors should apply this principle. Ordinary hard-working South Africans could also apply this principle if they understand how it works, so they too can overcome the challenge of not having enough hard cash to invest."

An investment in a buy-to-let property is a prime example of how ordinary South Africans can apply this principle. "What most people fail to realise is that you don't need R500 000 in hard cash to buy a buy-to-let property valued at R500 000," comments Dr du Toit. "You can borrow money from the bank in the form of a home loan to buy the property. And while it is indeed more difficult today to obtain a 100% bond, many of the banks do offer 100% bonds, particularly on their properties in possession."

Of course it is all good and well if the bank gives you a bond, but how will you repay the bond every month? Another outstanding feature of buy-to-let property is the fact that you are not simply investing in a property that will appreciate in value over time, you are acquiring an asset that is also generating an income each month the rental. And it is this immediate rental income that allows ordinary people to invest in property without hard cash, because the rental income from a well-chosen property will cover most, if not all, of the monthly bond repayments and other costs involved with owning and renting a property.

So, in the end, you can buy a buy-to-let property with the bank's money, and then use the rental income generated by the property to pay the bank each month. Once the bond is paid off, and it is possible to do so within as little as eight to ten years - you will have a property worth much more than R500 000, thanks to capital appreciation, as well as an ongoing monthly income that increases in line with inflation.

Of course, warns Dr du Toit, it is not just any buy-to-let property that can allow ordinary South Africans to use the principle of gearing, and there are risks to be managed, as there are in any investment. However, it can be done successfully by applying simple, tried-and-tested principles.

The P3 Investment Group is educating South Africans about property investment as low risk investment alternative and one that allows ordinary, hard-working people to apply the fundamental financial principle of gearing to place them on the path to financial freedom and wealth.

"You don't need hard cash to start saving and you don't need a lump sum, or even a significant monthly contribution, to invest. All that is required is the willingness to consider the tried-and-tested alternatives to traditional savings and investments, which are in any case out of reach for so many of us,” observes Dr du Toit.

Courtesy: The P3 Investment Group.

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