Broke and feeling hopeless? Here are a few ways to help you save – for a car, wedding or home

By YOU
08 November 2017
PHOTO: Getty/Gallo Images

PHOTO: Getty/Gallo Images

Whatever you’re saving for, here’s how to reach your goals while avoiding common pitfalls

Everyone from economists to debt councillors are forever lamenting the fact that South African are bad at saving money. But focused saving is easier said than done. Especially in the current economic climate when few people reach the end of the month with any money left over to save.

But you don’t need that much to start your journey toward savings success, whatever the size of your goal.

“So many South African consumers are unfortunately so busy making or paying off debt that they never get around to saving,” says Nico Swart, a lecturer as Unisa’s School of Economic and Financial Sciences and author of many books and textbooks on personal finance.

Gareth van Deventer, head of OUTvest’s advice contact centre, agrees that South Africans aren’t good at saving and are generally even worse at budgeting.

“We have one of the worst debt levels in the world,” he says. “The old adage, ‘If you fail to plan, then you are planning to fail’ captures what budgeting is all about.”

These tips can help you reach your savings goals:

 

 1. Start early

This rule is applicable to almost all savings goals, but especially long-term savings such as retirement. If you want to ensure you can afford to retire, you need to put money away religiously for at least 30 years, Swart says. “In fact, these days [because people live longer] you need to aim for 40 years,” he adds. “People sometimes get caught up in a single savings goal, but your goals should serve each other.”

“The earlier you start, the better,” Van Deventer agrees. “You would need to save a lot less per month for your retirement years if you start at a younger age as opposed to starting at a later stage in your life. Younger people often take on debt and then, instead of saving and getting ahead, they end up spending the next five to 10 years of their life paying off debt.”

He recommends avoiding debt as far as possible and rather saving for a car or dream holiday. Debt, he says, accumulates quickly and “can easily take over your life”.

 2. Clearly define your separate goals

Follow a separate strategy for the short and long term, was the advice Thomas Stringfellow of Stringfellow Investments Specialists gave YOU.

For short-term savings you need to ask yourself questions such as, “If I die today, will my family be able to survive financially?” This is why you need not only life and disability insurance as well as medical aid, but also a separate savings account for unforeseen setbacks.

“Cash is always king for short-term emergencies,” Stringfellow adds.

When it comes to longer-term goals, it’s best to invest for at least five years.

Van Deventer adds that your savings goals will have different investment time and horizons and risks. “If you’re saving for a holiday in two years’ time, it would require a different investment plan to saving for your retirement 30 years away, for example,” he says. “Don’t use your retirement savings to fund short-term or emergency expenses – it could negatively affect your retirement plans one day.”

 3. Budgeting and planning is key

People often don’t include things like a family holiday, their kids’ future education, a new car or their retirement years in their budgeting, Van Deventer says.

“If you haven’t budgeted for something, then don’t buy it! Rather set up a new savings goal and build up some funds towards purchasing the item.”

Review and rework your budget at least once a year, or if your circumstances changes, such as getting married or having kids. If your income increases, adapt your monthly savings amount accordingly.

When it comes to getting married, John Manyike, head of financial education at Old Mutual, advises saving as much as possible for the big day in order to lighten the financial load later. Wedding planners reckon a wedding with 80-100 guests can easily cost you R70 000-R80 000.

Many couples – or their families – get deeply into debt to have that dream wedding. But a modest affair after which you can start your life together on a financially sound foundation makes much more sense.

“Ideally, you should wait to get married until you can afford it,” Manyike says. Consider postponing the wedding for a while, or choose a date and/or venue that’s more in line with your budget.

Van Deventer says when you need to buy an expensive item, it’s best to fit it into your usual household budget and just cut back elsewhere. “For example, buy your winter clothes at the start of summer when they’re on sale, and vice versa.”

 4. Put a little extra away every chance you get

“It’s amazing how people think they need a ton of money or need to know a lot about investing if you want to save,” Van Deventer says. “If you have any extra cash, rather save it as opposed to spending it on pointless items. Even adding R100 a month more to an investment will make a massive difference to your total savings.”

He gives the following example: If you save R1 000 a month, increasing at 6% a year in a moderate risk type fund (which tries to beat inflation by 4% every year), it should give you approximately R499 000 after 15 years. If you saved an extra R100 a month (a total of R1 100 a month), this could push the amount you receive after 15 years to an estimated R550 000.

Always be on the lookout for ways to save extra money, Van Deventer says. “If, for instance, you thoroughly research car and home content insurance and compare the different insurers’ products, you can save hundreds of rands a month.”

 5. Understand the financial product – and don’t listen to every Tom, Dick & Harry’s advice!

Not understanding your investment products can deal your saving efforts a serious blow, Van Deventer says.

“Some people save using a certain product because their friend said it was a good idea. They have no idea how the product works of the terms and conditions applicable.

“When they want to make a withdrawal, for example, then they suddenly find out that their money is locked away. They tend to focus on returns as opposed to the other important aspects, like access to their money, tax implications and the risks associated with the product.”

 

 6. Ignore the noise . . .

Once you’ve set your goals, done your home and asked the right questions, you need to ignore the short-term market noise around you. “Stick with it, be patient and don’t be the one always chasing seemingly better returns,” Van Deventer advises.

 7 . . . but regularly revise your savings plans

You need to review your investments at least once a year to ensure you’re still on the right track. If you find you’re not, you need to consider what you can do in order to reach your savings goal. “Things like additional contributions can make a huge difference and get you back on track and even ahead,” Van Deventer says.

 8. Discipline, discipline, discipline

Successful saving is much like dieting to lose weight. “You can’t stop halfway,” Van Deventer says. “For example, if you’re saving for an expensive item or a deposit on that item, you simply have to put the money away every month for the duration of the investment.”

There are few things as satisfying as reaching your saving goal, he adds. “It will definitely motivate you to want to do it again. Savings success breeds success.”

He says people often start saving with vigour but their enthusiasm dwindles with time. They’ll use excuses such as, “I don’t see the point; the markets are bad and I’ll just lose money.” Or, he adds, they become distracted by creating debt to buy that new expensive car. “Stay focused!” he warns.

 

 9. Reach out

If you’re saving for a good cause, you might consider asking others to help you.

“Ask friends and family to help you save for important goals like your child’s education or a wedding,” Van Deventer says. “Think about all the broken or useless toys given as birthday gifts lying around. Rather give your child the gift of an education or even a once-in-a-lifetime trip to see the world.”

Online investment platforms such as OUTvest’s Crowdvest option allows family and friends to contribute towards any goal, such as a child’s education.

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