July marks National Savings month in South Africa. However, savings as a practice in South Africa for most South African is an elusive idea, for several reasons. The most popular reason why South Africans struggle to save is because of affordability. In other words, the gap between their income versus their expenses on a month to month is vast. The second one is attributed to people not believing in saving or grappling with the understanding of its importance.
Data indicates that only 6% of South Africans can afford to retire comfortably for reasons attributed to poor financial behaviour, including a poor savings culture. Savings is about a balance between satisfying our current needs with those in the future. There are small ways to start, personal finance advocates always preach living within your means to maximise your salary, save and plan for some purchases. This also means training your mind to be disciplined when it comes to money and avoiding being lulled into unnecessary debt and spending.
Whist it is important to save, what is more important is understanding the difference between savings and investing, and what each offers. Saving and investing are about smart ways of balancing our present and future needs. For some saving also means saving towards future goals and for rainy days and for others investing is channelling funds towards wealth creation. This is informed by ones goals, which could either be short or long terms financial goals.
Short term goals are, for example, a holiday to your dream destination, a special item or even an emergency fund for anything unplanned. Cash saved in this account can be saved in a current or flexi-fixed account to access whenever you need it and is within the six to 12-month period. On the other hand, with long-term goals the period is longer than 12-months, which sometimes can be confused with investments, you need a fixed account or an investment vehicle such as Eft’s, shares, bonds and even property. This results in your money compounding in interest and allowing for you accumulating a larger sum of which you can cash out when looking to invest in an asset such as a car or house later.
The first step to take towards saving is acting on your intention and opening a dedicated savings account, where you will deposit money every month. More to your convenience, request a scheduled transfer with your bank on a specific date from your current account to your savings account. The next step is to decide how much you can “afford” to save. Typically, advisors say people should save 30% of their salary, and others say 10%. Affordability has a continuum that differs from person to person but what is important is to start.
Savings is a habit, and a budget is a skill, the former needs you to make it a lifestyle, and the latter requires decision making on prioritising your basic needs and wants. Financial literacy organisation ASISA provides simple steps to saving, and these include:
- Savings clubs / Stokvels
- Savings accounts
- Notice deposit accounts
- Tax fee savings products
- Shares & Unit trusts
- Govt bonds and Retirement Annuities
- Endowment policies
Although these are recommended, they are many other platforms and vehicles you can explore when it comes to savings as well as investments. Whilst it is better to start sooner rather than later on, start when you are ready.