The South African Savings Institute (SASI) has launched its annual July National Savings Month Campaign yesterday. Floris Slabbert, National Sales Manager at Ecsponent Financial Services, believes that South Africans must remain disciplined in fostering a culture of saving, especially during the present challenging economic environment.
“South Africans often do not understand the importance of short, medium and long-term financial planning. This may be due to low levels of financial literacy and as a result the country has one of the worst savings rates in the world.
“In fact, the latest data from the Investec GIBS (Gordon Institute of Business Science) Savings Index actually shows that we are moving backwards and that South Africa’s savings are at a 20-year low-point. A score of 100 is considered a “savings pass mark,” but we scored just 63 in the last quarter of 2015.
“With household expenses on the rise it is likely that many more consumers will unfortunately, abandon their saving initiatives in an effort to stretch their disposable monthly income,” he comments.
However, the long term benefits of saving cannot be stressed enough and Slabbert encourages everyone to save, even if they start small. Here are five top savings tips to keep in mind this National Savings Month:
1. Determine your savings goals
Ultimately, the amount you save will depend on your savings goals and the life stage you find yourself in. Whatever your age, or whether you are saving for a deposit to buy property, your children’s education, or your retirement, consider where you want to be in the next five to ten years. After thinking through your future plans and aspirations you will then need to ask yourself the all-important question as to how much money will you need to earn and save to support these goals?
2. Draw up a budget that prioritises saving
It is said that it is not our salaries that make us rich, it is our spending habits. And yet, most consumers do not plan and track their monthly earnings, which results in them being cash-strapped halfway into the month. To avoid this, set a realistic budget that prioritises spending and then sets enough aside for day-to-day living expenses. Don’t attempt reversing the order. If we wait to see what is left over after spending, we would never save. Instead, pay yourself first and then spend what is left over.
3. Distinguish the difference between wants and needs
In a consumption driven economy like ours, we’re bombarded by media telling us what we must own, look like, drive, and where we should live or do for fun. This constant barrage of information makes it hard to distinguish between wants and needs. Put simply, a need is something you must have. A roof over your head, food on the table, healthcare, hygiene products, clothing etc. Our wants are usually closely linked to the needs and we want a big house, restaurant-quality food, branded clothing and fancy cars. Don’t think that wanting is a bad thing – life is after all for living not surviving. The caveat, however, is that we must be sure we can afford luxuries before treating ourselves.
4. Declare war on debt
Ridding yourself of debt is a giant leap towards financial freedom. One approach that yields fast results is to make a list of all your debt and then prioritise paying off the debt that attracts the highest interest first. Another approach is to pay off the smallest amounts of debt first, so that you can enjoy the satisfaction of crossing creditors off the list one-by-one. Whichever route you choose to follow, commit to seeing through the plan to free yourself from the burden of debt.
5. Consider tax implications
You don’t have to be a tax expert, but spend time investigating the different tax implications applicable to the savings and investment products you’re considering to include in your financial plan. No one can avoid paying tax altogether but with planning you can find solutions that put the most money in your pocket. For example, tax-free savings accounts allow investors to invest a maximum of R30 000 per annum or R500 000 in their lifetime, with all the proceeds earned on this investment being entirely tax-free. However, bear in mind that if you exceed your contribution limit, SARS will levy a 40% penalty on the portion of the contribution above the threshold. In other words, you need to take the full picture into consideration to evaluate whether a specific investment is suitable for you.
“Providing access to savings vehicles that are understandable and accessible, together with initiatives that brings about greater levels of financial and economic literacy among adults and children in South Africa, will go a long way to establishing a culture of saving at a national level that will result in benefits long after national savings month has passed” he concludes.