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Video: How to reach R1 million in 5 years

Dec 10, 2019

Last year we had a Money Matters show where we illustrated how you could save R1.1 million within 15 years using your tax-free savings allowance of R2 750 per month.

A viewer asked us if it was possible to reach R1.1 million within five years by tripling the amount to R8 250 per month.

This is where the power of compounding, and time, becomes so important. If you invested R2 750 per month for 15 years, you would have invested R495 000. If the investment grew at 10% per annum, it would be worth over R1.1 million.

However, if you invested R8 250 a month for five years, you would also have invested R495 000, but even if you had the same rate of return at 10% per annum, it would have grown to only R638 000.

This is because over the shorter period, you had not benefited from the power of compounding. At a growth rate of 10%, your money doubles every seven years. So, the longer you invest for, the more opportunity there is for your money to double.

In this case, if you invested R8 250 a month for five years, it would take another five years leaving the money to grow in order to reach the R1.1 million level. If you continued to invest R8 250 for longer than five years, you would reach R1.1 million in less than eight years.

If you still wanted to have R1.1 million within five years, you would have to invest over R14 000 a month or R840 000 over five years.

This is why the longer you invest for, the less you have to contribute because time and compounding do the rest for you.

4 Comments

  1. Hi. Unfortunately I resigned as a teacher after being permanent for 8 years. GEPF paid out R390 000 of which SARS claimed R70 000. With the remainder of the money (R310 000) I paid off half my debt including lawyers and some creditors. Two years and 5 months later, I am teaching again but on a contract basis. I am planning on becoming permanent again. The challenge that I currently have is that I once again didn’t save or invest anything over the past two years and 5 months.

    My question is simply do I have time to build up a convincing pension for myself. At the end of December this year I will have R100 000 rand in my account that I worked for part time as a sales rep. Where can I invest this money and on top of it invest a portion per month until the age of 60. I only want to work until 60 years old. So I am currently 35, have no pension or savings and I am not permanent. Can you give me two scenarios of outcome perhaps. The one being i become permanent at 36 years old and contribute via the GEPF monthly. Which means I will have only approximately 24 years to work. How can i contribute to my pension separately. Then the other scenario is work as a contract teacher for the next 24 years and try and build up a pension by myself. I earn R28000 per month after deductions and have a car installment of R6000. After bills is paid I am left with about R10000.
    Please advise. Thank you.

    Reply
  2. Which banks offer 10% per annum interest rates on R2,750 monthly?

    Reply

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Maya Fisher-French author of Money Questions Answered

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