Saving as a group is a lot better

2011-08-06 08:12

Do you want to save but lack the motivation? A quick solution is to set up or join a savings club.

One of the findings of the Old Mutual Savings monitor that really stands out is the power of savings clubs or stokvels.

Despite the recession and job losses, savings clubs have reported an increase in the level of savings.

About one-third of South Africans save via savings clubs and in black communities, every second person saves via a club.

What the findings also show is that savings clubs are popular across all levels of income with even 30% of high-income earners saving in clubs.

Savings clubs can take a variety of forms. It can be the traditional stokvel where a group of people save together for end-of-year expenses and use their buying power to buy goods in bulk. Or it can also be a group of friends saving for a special holiday.

Some people use it to start long-term savings in unit trusts or to build up a share portfolio.

But the power behind these savings clubs is that they motivate one to save.

When saving on your own you are more likely to give up and you are more likely to give in to temptation to spend the money elsewhere. But if you are sitting with a group of friends and trying to explain to them that you can’t meet your obligation to the savings club because you bought a new pair of shoes, you may feel a little differently.

Here are some guidelines you should follow to start a savings club:

Why are you saving?
When starting a savings club you need to decide what you are saving for, how much you will each save and how you will divide the money among the savings club.

» You can split the money equally and spend it according to your personal, family or other special needs.

This may be the easiest option to agree on as it allows the members to spend the money how they choose.

However, you need to decide at what point you will cash in the funds.

December is a very popular end-date because that is when most people need a cash injection either for holidays, gifts, school fees and so on.

Alternatively, you could agree only to cash-in once you have reached a specific target;

» You can plan something as a group – go on holiday or buy goods in bulk and share;

» You can form an investment club where you save up a lump sum and invest in unit trusts or you could go the route of buying shares on the stock market.

You would have investment meetings where you can discuss shares and do some research.

This would be a much longer term investment of at least three years; and

» You may want to pool your savings to start a small business. This also requires some research, business knowledge and an agreement regarding the running of the business.

The agreement
Once you have agreed on the purpose of the club, you need to draw up an agreement which addresses these questions:

» How much will each person contribute?

» What is the purpose of the club?

» How often will you meet?

» What happens if a member stops contributing or needs to cash-in early? Here, for example, another member could have the option to buy another’s portion of the investment;

» Where will the account be held?

» Who will be the signatories? It is important to open an account where there are at least two signatories; and

» Who will be treasurer and chairperson? Elect a treasurer who will keep track of the investments and manage the books as well as a chairperson who can convene the meetings.

These roles can be changed yearly.

Types of investment
1 Investment account

Another option is to start an investment club.

The difference is that this would be a longer-term savings plan of between three to five years.

You could collectively invest in exchange traded funds like Satrix Rafi (www.eftsa.co.za for more information on exchange-traded funds) or in unit trusts with one of the large asset management companies.

Watch out for high upfront fees and rather select a fund manager that has low to zero initial fees like Investec, Allan Gray and Coronation for example.

2 The short-term account
A shorter term investment of less than two years is best kept in a high-interest account.

All four major banks – Absa, FNB, Standard Bank and Nedbank – offer savings clubs. You need to consider the fees and interest rates as well as value-added products.

For example, the Absa Club account offers accidental death cover for up to 10 members for free and family funeral cover for R25 a month a member. So a portion of your contribution could go to funeral cover and the rest to savings.

If you don’t need these and just want a higher return, consider accounts that pay higher interest such as a
32-day notice account or Nedbank’s NedTerm. The latter has a minimum deposit of R1 000, additional deposits of R100 and no minimum limit on the withdrawal. Funds are available at one day’s notice.

3 Share portfolio

An investment club is a great way to learn about the stock market.

By combining your money, time and research you can start building up a share portfolio.

Some stockbroking firms like PSG cater for investment clubs and offer training and monthly education sessions.

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