De­ferred spend­ing can save you a for­tune

Weekend Argus (Saturday Edition) - - GOODPUZZLES -

Say the word “save” and in­creas­ingly the con­ver­sa­tion turns to debt. South Africans can’t save be­cause they’re drown­ing in debt. But what if we sought to save our­selves from the cost of credit.

If you con­sid­ered sav­ing as “spend­ing post­poned” and got into the habit of sav­ing for what you wanted rather than in­cur­ring debt, you could save a great deal.

By liv­ing within your means, you are sav­ing, be­cause of the high cost of credit, says Natasja Hart, a fi­nan­cial plan­ner at GCI Wealth.

For ex­am­ple, buy­ing a TV for R6990 on credit over 36 months, will cost you R12 157 in to­tal over the term. Al­most 80 per­cent of that will go to re­pay­ing the cap­i­tal plus in­ter­est at 21 per­cent a year. The rest, about R2 700, will cover costs, such as a R100 fee to ini­ti­ate the loan and a monthly ad­min­is­tra­tion fee of R57, and credit life in­surance.

If you put away R338 a month (the av­er­age monthly in­stal­ment, in­clud­ing all costs, of buy­ing the TV on credit) to save up for the TV, you could buy it cash in just un­der two years (23 months), as­sum­ing you earn in­ter­est of 5.5 per­cent a year on your sav­ings and the price of the TV went up by 6.5 per­cent a year, to R7 928.

By de­fer­ring your spend­ing and sav­ing up for the TV, you would save your­self R4 229 (R12 157 mi­nus R7 928).

If, after pay­ing for the item in cash, you carry on sav­ing the R338 a month to end of the 36-month term, you will have the added bonus of about R4 500 in sav­ings to put into an emer­gency fund or to in­vest.

Steven Nathan, the chief ex­ec­u­tive of 10X In­vest­ments, says wealth is not what you spend, it’s what you keep. “When my chil­dren have re­ferred to other peo­ple as ‘richer’ than us, I say to them: ‘We don’t know that; what we do know is that they spend more than we do.’ In South Africa, we need to de­velop a cul­ture of liv­ing be­low our means.”

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.