Save your way to a better future
Save even in unsteady times for better financial security
SOUTH Africa may have entered a recession, but its no time to stop saving, and even a better time to start.
Novare Investments’ head of research Nosibusiso Ngqondoyi said with unemployment at 27,7%, and workforce growth stagnating, many individuals are forced to work for “right now”, as opposed to planning and saving for the future.
But people are also becoming aware that a financially secure future is not a given, and it is important for them to take ownership of their financial future, she said in a statement yesterday.
“In the unsteady economic climate, it becomes even more important to save, as the probability of unforeseen events that can or will impact financial markets, increases,” said Ngqondoyi.
She reflects on some of the other aspects of saving during a recession.
“Saving involves putting money away with a target in mind and is usually shortterm in nature. Investments are longterm and shouldn’t be money one would rely on for a rainy day or emergency. The sooner one adopts the habit of saving, the better, as money needs time to grow and reap the rewards of compounding growth.”
Many South Africans are not aware of the positive longterm effects of proper financial planning.
Learning how to save money is a skill a person can learn from an early age and the earlier the lessons begin, the better individuals are likely to be at it, and the more likely they are to adopt other forms of savings and investing in the future.
There is no better time to start saving than now.
While a recession might raise concerns around investments delivering lower yields, as well as higher risks (which is generally associated with investing in financial markets like equities), this should not deter people from putting money away for the future.
Interest rates tend to be lowered during periods of weak economic growth in a bid to revive the economy, and people often stop saving or investing. When the economy stabilises, interest rates normalise and financial markets start trending upwards, people generally start saving again.
But this can be a costly exercise in your overall financial planning as lost time cannot be recovered. Successfully timing the market is nearly impossible.
Periods of economic distress can also present an opportunity for investors to buy quality assets at cheaper prices.
By remaining invested and adopting a longterm outlook, investors can benefit greatly.
It’s important to note that as interest rates earned on savings go down, so too do debt servicing costs. So, what you lose by way of interest, you gain by benefitting from lower interest on debt, like mortgage bond, bank loans etc.
This means your overall financial wellbeing should remain unchanged.
Weaker interest rates normally lead to higher investments from the private sector as companies benefit from lower investment costs. This presents an opportunity for financial markets, like equities, to do well, and therefore bodes well for investors with a longterm outlook.
Risk adverse investors can also remain invested during periods of increased uncertainty.
Money market funds can provide a safe investment vehicle, as they pose little to no risk. Local money market and most income funds currently offer attractive yields.
“In the unsteady economic climate, it becomes even more important to save, as the probability of unforeseen events that can or will impact financial markets, increases ... There is no better time to start saving than now.”