When your salary comes in every month you have so many needs and wants to attend to that you have nothing left for your savings. Does this sound familiar?
You’ve been told to save money since you were young, yet it only gets harder as time marches on. But in essence saving is about forgoing the ordinary now (clothes, gadgets) for the extraordinary later (holidays, weddings, an education). But anyone can save a little towards a rainy day, according to Didintle Mokonoto, certified financial planner at Alexander Forbes Financial Planning Consultants. The key, being, to put the money away at the beginning of the month before you can spend it. “If you save a portion of your income as soon as you get paid, you won’t have a chance to miss it and you’ll be free to spend the remainder on your needs and wants with less anxiety about the future,” says Mokonoto. Saving your money regularly is a great way to pay for expensive items that you may not be immediately able to afford. Examples include cars, weddings and holidays. “You could use your credit card to pay for these ‘want items’, but this will end up costing you more because of the interest payable.” It can also lead to debt problems if don’t manage your repayments properly.
Change your attitude to savings
Mokonoto said saving can help with long-term goals such as a good retirement income or having enough to cover your children’s university fees.“Meeting these goals, however, requires you to start saving for them now. It’s common for people to put off the process of saving and make excuses such as: “I’ll save when I get an increase, when I get to a certain age, when I sign that big deal, or when I’ve paid my car off.” These deadlines will not push you to start saving.”She cautions that people might not realise their expenses will increase as time goes by. This is why it’s wise to sacrifice some spending now so that you can meet your future goals.Building a culture of saving can help you learn how to budget appropriately, knowing that every month a certain portion of your income is going to your savings. “The definition of culture is ‘a way of thinking, behaving or working that exists in a society or organisation’. Simply put, the culture of saving means you put a fixed amount of money away in a savings vehicle every month until it becomes a way of life for you.”
Important concepts on how to save
When you start to save from an early stage in your financial journey, you allow your money to benefit greatly from compound interest. “Compound interest allows individuals who are saving every month for a long term to become relatively wealthy. The power of compound interest is not about saving large amounts, but rather about saving over a longer period of time.It means you’re earning interest on interest for however long you keep the investment active. This is highly beneficial for long-term saving, no matter how insignificant your saving may seem.”There are many vehicles you can use to save money. “The vehicle (or account) you choose to use will depend on factors such as your investment time horizon, whether it’s a once-off lump sum or a monthly debit order, and what your investment objective is, etc.”If you want to save for your retirement, consider investing in a retirement annuity, Mokonoto said. “This would be over and above the contributions you make towards your company pension or provident fund (if your employer offers this benefit to you as an employee). A retirement annuity is a great way to save for retirement because you’ll receive tax deductions for your contributions. This can be used for your tax planning as a tax avoidance tool.”Endowments can also be used for individuals who would like to save for at least five to ten years. “If you have young children and would like to save for their education, this is a good savings vehicle to use. Unit trusts, exchange traded funds and even your simple savings account can be used for your more short-term investments.”“It’s always a good idea to chat to a financial planner, who can hold your hand and guide you along your savings journey. Planning properly today can go a long way in helping you to meet your financial goals so that, ultimately, you can own your tomorrow.”Need advice on the best savings products? Ask the Guru by posting your questions in the comments box below.