Why should you bother saving?

Many people buy savings or investment products and don’t know what’s happening with them. Why, when it comes to investments, does common sense fall by the wayside?

Many people buy savings or investment products and forget they have them, or don’t know what’s happening with them.

Imagine you want to buy a new car. All you know is that it must be a red sedan. You don’t care about its make or model, features or costs. Anyone who shopped for a new car like this would be considered irrational, if not insane.

Yet when it comes to investment and retirement products, this kind of common sense often falls by the wayside. Many South Africans have no idea where their money is invested, how it’s performing or how much it costs them.

They may have an employee pension and know some money is deducted from their salaries, but nothing more. Others have taken endowment or retirement annuity products sold to them by brokers and they aren’t sure where it ends up.

Many people buy these products, then forget they even have them. They put away hundreds of thousands of rands, but would never see the proceeds unless a broker trawling through unclaimed policy benefits found them years later.

It’s important to appreciate why so many people show such disregard for their money.

First, many people don’t think they can understand investing. They believe choosing funds or analysing costs is too complicated and they could never grasp it. It has also become accepted that finance is a difficult topic that needs a special kind of intelligence to understand.

In truth, investing is far less complicated than the rules of almost any popular sport. If you can understand what’s going on at Wimbledon, you’re can appreciate how investments work. You just need to take time to learn.

Secondly, nobody wants to appear stupid. So even though they know they don’t understand what’s happening with their money, they don’t want to ask for help.

Thirdly, there’s a societal attitude that regards money as something extremely private. Parents don’t talk about money to their children and the details of your payslip are treated as a closely guarded secret. So, instead of being an everyday thing, money becomes something the man on the street should be a little scared of.

These combine to make people so uncomfortable about their investments and retirement products, that they ignore them. They don’t feel they can face them. Yet few people appreciate the real trouble they’re making for themselves.

The fourth issue, is that it’s very difficult to connect to our future selves. The person who in 20 or 30 years’ time will live off the retirement savings we’re putting away now is a stranger to us.

But if you don’t know what you are saving for, why bother doing it at all? If there’s no connection to what this money is for, then there’s no incentive to take any interest in it.

Visualising the future and knowing what your want for yourself when you get there will make you question whether you’re doing the right things to achieve that outcome. Being set on a definite goal creates the motivation to learn more, understand more, and save more.