Five prac­ti­cal ways to save

Putting money into a sav­ings ac­count is not just for your own well-be­ing – it can also have a mas­sive im­pact on the econ­omy as a whole.

Finweek English Edition - - MARKETPLACE | INVESTMENT - By Schalk Louw ed­i­to­rial@fin­week.co.za Schalk Louw is a port­fo­lio man­ager at PSG Wealth.

i‘m sure that many of us have looked for­ward to a salary in­crease or an­nual bonus so much that we just went ahead and shame­lessly spent our money on all the de­sir­ables we’ve been look­ing for­ward to all year even be­fore pay­day. Sober­ing is that mo­ment when pay­day ar­rives with­out your ex­pected salary in­crease or bonus dur­ing a time when the prices of ne­ces­si­ties such as elec­tric­ity and fuel are sky­rock­et­ing. Sud­denly you find your­self star­ing at a neg­a­tive bank or credit card bal­ance, and the month has barely be­gun.

But don’t blame only your­self for your sub­jec­tive judg­ment on spend­ing habits – the en­tire South African econ­omy has been head­ing down the same path for quite some time.

Lo­cal GDP de­clined by 0.7% for the first quar­ter of 2017, af­ter de­clin­ing by 0.3% in the last quar­ter of 2016, which means that we now of­fi­cially find our­selves in a re­ces­sion. Af­ter our down­grade to junk sta­tus ear­lier this year, the Re­serve Bank, which nor­mally would have low­ered in­ter­est rates af­ter such fig­ures have been re­leased, would have to think twice be­fore tak­ing ac­tion. So ul­ti­mately, things don’t look so good for the rest of South Africa.

It is per­fectly nor­mal to get used to, and to want to get ac­tively in­volved in an eco­nomic growth process. Your de­gree of com­mit­ment, en­thu­si­asm and drive in your own eco­nomic in­volve­ment, is what de­ter­mines your own per­sonal fi­nan­cial free­dom.

What few re­alise, how­ever, is that eco­nomic growth can only take place through ei­ther sav­ings or loans. You need cap­i­tal to cre­ate wealth (as the old say­ing goes, “it takes money to make money”). This means that growth can only be re­alised if the net sav­ings ef­fect yields more money, or if the net fi­nance ef­fect be­comes more favourable (e.g. mov­ing fi­nanc­ing to a lower rate fa­cil­ity).

With July dubbed Na­tional Sav­ings Month in SA, it is only ap­pro­pri­ate that we take a look at how well we did with sav­ing in the past.

Over the past 20 years, net per­sonal sav­ings as a per­cent­age of per­sonal dis­pos­able in­come has dropped from 11.3% to -0.44% in SA (as at end of 2016). Ac­cord­ing to all pos­si­ble bench­marks, this fig­ure is un­ac­cept­ably low. The pe­riod be­tween 1995 and 2000 saw per­sonal dis­pos­able in­come rise by 69%, yet per­sonal sav­ings dropped from R6.2bn to a mere R2.9bn. With higher prices and the pos­si­bil­ity of higher in­ter­est rates, it would seem that the abil­ity to save is now less than ever be­fore.

Fig­ures clearly show that South Africans are strug­gling to save money and un­til you ex­am­ine and be­come will­ing to change bad spend­ing habits, you can for­get both your sig­nif­i­cant wealth and fi­nan­cial free­dom.

Here are some pos­si­ble prac­ti­cal so­lu­tions:

First, get your bank state­ments to­gether and an­a­lyse your spend­ing habits. Are you a squan­derer? Do you re­mem­ber where all those ATM with­drawals went? Make a point of cut­ting out the “fat” in your spend­ing habits.

Next, com­mit your­self to a plan that will force you to save. Set up a monthly debit or­der through which you can con­trib­ute to your sav­ings.

Third, find the best sav­ings frame­work for your­self. Make use of a tax-free in­vest­ment, a unit trust in­vest­ment or a five-year term pol­icy in­vest­ment. Since tax-free in­vest­ments and unit trusts are fairly flex­i­ble when it comes to with­draw­ing funds, prospec­tive savers should be care­ful not to suc­cumb to the temp­ta­tion of cap­i­tal with­drawals. If that is the case and you know your­self well enough to ad­mit that, rather con­sider a term-in­vest­ment.

En­sure that your sav­ings are prop­erly man­aged in or­der to trans­form your money into an in­vest­ment with above-av­er­age re­turns. Don’t just leave your sav­ings in money mar­ket where you will only earn money-mar­ket rates (cur­rently around 7%), es­pe­cially if your risk pro­file al­lows you to in­vest in po­ten­tial higher in­come in­vest­ments. Rather fix your in­vest­ments for in­ter­vals of be­tween 30 and 90 days in or­der to get 7.65% to 7.8% an­nual growth, while still re­tain­ing some level of liq­uid­ity. Even if we take the great correction of 2008 into ac­count, the lo­cal stock mar­ket still de­liv­ered an av­er­age of 5% bet­ter growth yearon-year, when com­pared to money mar­ket.

Fi­nally, en­sure that each rand you save is in­vested in the best and fastest-grow­ing way pos­si­ble, as long as it falls within the lim­its of your per­sonal risk pro­file, so you can con­tinue to build to­wards your per­sonal wealth and fi­nan­cial free­dom. ■

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