Deferred spending can save you a fortune

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.”