Five savings myths you need to let go of

EVERY July, which is National Savings Month, we are reminded how important saving is, but by September most of our good intentions have fallen by the wayside. How can we prevent this from happening this year and commit to keeping our financial resolutions?

The first step is to let go of some common myths about saving. Successful savers do not fall prey to these common myths, which cause many of us to delay, or give up on, saving.

Myth 1. Saving is about what you earn.

Although we like to believe that the ability to save is linked to earning more money, we all know of high-earning individuals who live from pay-cheque to paycheque.

The reality is that saving is not so much a factor of what you earn, but of the difference between what you earn and what you spend. Anyone can save, and the first step is to take a long, hard look at your expenses and see where they can be curbed. As Warren Buffett famously said, “Don’t save what’s left after spending; spend what’s left after saving.”

Myth 2. Saving is for retirement only.

You will not need savings only when you retire. You could need them tomorrow (when you need to cover an out-of-pocket medical expense), next month (when the tyres on your car need to be replaced), next year (when you want to take a holiday), or three years from now (when you are retrenched).

Without a safety net to fall back on, or a nest egg for bigticket items, you are far more likely to overspend and incur expensive debt.

Myth 3. The bank is your best friend.

Your money should always work for you. Unless your savings are outpacing inflation, you are effectively losing money, and money left in an ordinary bank account will not be keeping up with inflation. In the short term, this effect is less pronounced, but in the long term it can be devastating.

Be sure to invest in a savings vehicle that matches your investment horizon. In the short term, stock markets are volatile and you could lose money. In the long term, shares and listed property are the only asset classes that beat inflation.

Myth 4. You can always catch up later.

Much has been written about compound interest, and it has even been called the eighth wonder of the world. Compound interest needs time to work its magic. By putting off saving until you “can afford it”, you are losing out on one of the most powerful forces in the investment universe. The sooner you start to save, the better, even if the amount seems small.

Myth 5. Saving can wait while “life happens”.

Saving should be a mindset, rather than something you do “when the time is right”. There will always be “good reasons” to postpone saving, and we often get side-tracked along the way.

Most of us blame misfortune (losing a job, not getting a raise) or market corrections for our failure to achieve the financial position we’d hoped for.

Although most of us fail – South Africans’ savings rate and provision for retirement is worryingly low – there are some who succeed. The difference is that they make saving a nonnegotiable part of their everyday life. When you achieve a savings mindset, you will find a way to save no matter what curve balls life throws your way. It may seem like a sacrifice today, but it could make a big difference to your financial security in future.

STAY COMMITTED

Sometimes, our financial goals seem so unattainable that we give up even before we begin. Saving for retirement may be a case in point. Achieving financial goals, no matter how grandiose or unlikely they may seem, starts with quantifying how much you’ll need and by when. Often, seemingly impossible targets mean we have to try harder and work harder.

In the long term, the power of markets and compounding work in your favour, helping you to achieve your goals – provided you have the patience to remain invested.

Marilize Lansdell is the chief executive of PSG Wealth.