Save today and attain financial freedom tomorrow
NATIONAL Savings Month reminds investors each July of the importance of saving. However, savings habits – once ingrained – need to be maintained throughout the year.
Using the power of compound interest – just make a start!
We all know we need to save, but perhaps the most important point is to start saving as early as you possibly can (or just start now, if you haven’t already!) in order to let compound interest work in your favour.
Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t… pays it.”
Sticks Stiglingh, Sanlam financial planner at Strata BlueStar Financial Services in Port Alfred, said that Glacier by Sanlam supports investing for the long term, and shares an example from Glacier that highlights how, by starting to save earlier, compound interest can work in your favour:
Person A saves R100 a month for 40 years, from age 25 to age 65.
Person B waits until the age of 45 and therefore only has half the amount of time to save, i.e. 20 years (from age 45 to 65). Person B will have to save R850 a month, i.e. 8.5 times as much as Person A, in order to accumulate the same amount of money as Person A at age 65. Long-term savings
Investors who are living off a salary now may find it difficult to comprehend having to live off their savings when they eventually stop working. It is important to realise that this “second salary”, or your retirement income, is essentially the salary you’ll be paying yourself in retirement as it is based on your own savings throughout your working career.
It is important to note that when it comes to long-term savings, a retirement annuity is not the only vehicle available to save for retirement. Investors who are disciplined enough (and not tempted to dip into their funds in the short term) can also use tax-free savings accounts, unit trusts and endowments as retirement savings vehicles, after having made use of the tax benefits available on retirement annuities.
Many people, particularly the younger generations, tend to delay investing due to behavioural biases. The (false) rationale is usually, “I will save when I have enough to save.” However, the benefits of long-term compounding cannot be highlighted enough – your savings need time to grow.
In conclusion, Sticks reiterates that the most important point to remember is that it is not how much you save, but rather for how long you save.
Contact Sticks Stiglingh on (046) 624-4948 / 071-612-7339 or
Sanlam is a Licensed Financial Services Provider.