Save your way to a bet­ter fu­ture

Save even in un­steady times for bet­ter fi­nan­cial se­cu­rity

The Witness - - YOUR MONEY - — Busi­ness Ed­i­tor.

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.”

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