The Boodle Blog

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5 February

Get to know the ins and outs of saving and become your own financial advisor

South Africans are not very good at saving money according to Reserve Bank statistics. The South African Savings Institute lists low disposable income growth, low employment growth, a rising tax burden and an inflationary environment as some of the reasons why we are among the worst savers in the world. The average household spends 80% of its earnings servicing debt and only 6% of retirees will be financially independent at retirement age.

Those are some scary statistics, but with some financial savvy and a bit of planning you could ensure you don’t fall prey to our poor national statistics. Here is some basic information on saving that you might not previously have been aware o. It’s time to snatch that piggy bank back from the Big Bad Wolf.

What are the benefits?

It’s pretty tempting to spend whatever money you have left after expenses when you get your paycheque, whether you earn R5 000 per month or R50 000. And being human means we are generally more likely to go for short-term gratification than wait out the benefits that come from putting away our nuts for winter. So what are the benefits of saving according to financial advisors?

Well, whether you are saving for your retirement or your child’s education, regularly putting away a certain amount will put you in a better position when that day comes. You also earn interest on the money you put away, so the more you put away and the longer you save the more your savings will snowball.

Especially for you

There are no two of us alike, so we will all  have different things to take into account when thinking about how much we are going to save. After paying all your expenses like rent, school fees and car payments, insurance and groceries, you might have to wrestle with yourself, nixing the weekends away and daily coffees, so that you can decide on the right amount that you can squirrel away. Are you saving for your wedding, your children’s university fund, your retirement, a new car? Your savings account will need to fit your needs.

Some of the options

Financial advisors will tell you that there are different kinds of savings accounts. Notice deposits offer an attractive interest rate in exchange for giving up the flexibility of having access to your money for a time.These types of accounts have a minimum starting balance and deposit amounts per month and require a notice period before the money can be withdrawn, for example 32 days. There are also fixed deposits - offering a fixed interest rate on an amount deposited for a lump-sum saving at the end of an agreed time period. And there’s also the option of flexible deposits where withdrawals are limited but you can deposit more money if you want to and a definite plus is that the interest rates rise with general interest rates.

Interest rates

You might regularly be putting away money but at the same time inflation will be going up and your interest rates might not be keeping pace. The R20 000 you started out aiming for in 2015 will not be worth as much in 2020.  Make sure that you keep adjusting the amount you are saving as your salary increases and this will help to counteract the effects of inflation. You will also have to take tax into account, although there are some types of savings accounts that are not taxed or only taxed a minimal amount. But, as mentioned in a previous blog some financial advisors say that investing in a property might be a better option than a savings account because it can generate money through rental while appreciating in value at the same pace as inflation.

For more sound advice on financial planning that will help you think like a  financial advisor in no time, follow our newsletter.