Many households and individuals struggle to survive in the current economic climate, but it remains imperative to have a safety net for a rainy day. Once you start to save, you will realise that it’s not too difficult to improve your finances. The road to financial wellbeing and independence begins with a change in your mindset and a humble savings account.
Most people work for their money. Very few stand to inherit a fortune. Even fewer come up with a billion-rand business idea, and even if they do, they still need money to transform it into a successful business.
Start saving today, says Zibusiso Moyo, Solution Owner of Personal Savings and Investments at Standard Bank. “In general, South Africans are consumption-orientated, not savings-orientated.
“It is common knowledge that a lot of people in SA live beyond their means, spending more money than they earn. With the harsh effects of the Covid-19 global pandemic, it has become even harder to save, with most people earning just enough to get by,” she says.
“Although it is difficult to start, the answer is just to try, using the little that we have. You don’t need to have a large sum of money to start saving,” says Moyo.
Banks offer a vast range of savings and investments products, from simple transactional savings accounts to demand accounts with easy access to funds but limited transactions and term deposits accounts that restrict access to funds during the investment term.
“The idea behind saving is dependent on your saving needs. There are saving vehicles to cater for various needs,” she says
“However, it is ideal to add to a savings account regularly and not be tempted to spend the money when the account starts to grow,” says Moyo, adding that savers need to develop discipline.
She gives new savers a few tips:
Moyo stresses that it is never too early (or too late) to start saving.
“Start early and save for the long term. The earlier you start, the quicker you will develop healthy savings habits and enjoy the power of compound interest.
“Just think what you would have had today if you started saving a few hundred rands every month a year ago, or five years ago.
“One never knows what the future holds, and to have some money in the bank is always a good safety net in case of a rainy day. If anything, the Covid-19 pandemic taught us that,” says Moyo.
Set a goal
The best way to get motivated and get started is to set short and long term goals. “Consider why you are saving. The term and goal will determine what type of savings account you need. The simplest is a savings account that also offers transactional capability. Costs to transact are usually low, and account holders earn interest. But transacting and saving in one account requires a lot of discipline,” says Moyo.
“Saving in a separate, dedicated savings account makes it easier by removing the temptation to spend money.”
She adds: “Dedicated savings accounts, especially those with longer fixed periods, also offer higher interest rates.”
|Account||Interest rate and provisos||Access to funds|
|Fixed deposit||Up to 6.8% (depending on the amount invested and the investment period you select; R1 000 opening deposit)||Access at maturity|
|Notice deposit||Up to 4.25% (depending on the amount invested and the investment period you select; R250 opening deposit)||Seven to 60 days’ notice to access funds|
|Flexi Advantage||4% (depending on the amount invested; 12-month investment term, with an option to extend; R1 000 opening deposit)||Access and replace up to 40% of your opening deposit before maturity|
|Tax-Free Call account||Up to 3.5% (R250 opening deposit)||Immediate access|
|PureSave||Up to 2.5% (this is a transactional account; no opening deposit required)||Immediate access|
Source: Standard Bank
The table shows that people who commit to saving a fixed amount every month will earn more interest than the occasional saver – and those who commit to saving for a fixed term earn even more interest. A look at interest rates paid by banks across the board shows that the longer the term of investment and the more significant the amount invested, the higher the interest rate.
Keep savings separate
Setting up a separate, dedicated savings account not only removes the temptation to spend money, but growing the savings account becomes a goal in itself – and watching it grow becomes rewarding, says Moyo.
Reduce spending, cut debt
People can start saving or saving more by looking at their expenditure and finding opportunities to cut their spending. “The most obvious example is to pack a lunch rather than to buy one every day,” says Moyo.
“Then, a lot of people pay for things they don’t need or services they do not use. Examples include subscriptions to magazines that are never touched or paying television subscriptions and never really watching any programmes, or the classic gym membership without ever seeing the inside of the gym.”
She says it is easy to cut back on expenses: “Just look at your bank statement at the end of the month and check where you spend money.”
Reducing debt goes hand in hand with reducing spending.
A flying start to saving and investing may start with a windfall, such as a bonus, an overtime paycheque or an increase. “Start saving some of it before you get used to having it for any new expenses you may start to incur,” advises Moyo.
A windfall to start a savings account could be lurking in your home, hidden in a heap of dusty equipment of forgotten hobbies, ranging from golf clubs, bicycles and fishing rods to a piano, guitar or an unused chest freezer.
“Kick-start your savings journey by selling the stuff you don’t use, at the same time helping somebody who needs it and will use it,” says Moyo.
Regular, fixed contributions
There are a few steps to building savings and wealth. Once again, the start is a simple savings account and progressing from there.
“The secret is to add to savings regularly. It is a good idea to use a debit order [to transfer funds] from your transactional account to your savings account or having the motivation and discipline to transfer money to your savings account every month,” says Moyo.
Limited access to savings also helps people to save. Some savings accounts limit access to funds, such as a fixed-deposit investment made for six to 12 months, while others may limit access to a specific part of the amount in the savings account. An example is the Standard Bank Flexi Advantage account, which allows access to 40% of the investment until the end of the investment term.
Other savings accounts are structured to pay the interest into another account every month. At the same time, the capital (the amount saved) will only be available at the end of the investment term.
Tax-free accounts offer savers an additional benefit in that that no tax is payable on the income earned on the funds invested, be it interest or dividends. The tax breaks on interest earned means that tax will only become an issue when one’s savings account balance gets pretty big.
Then it might be time for the next step, says Moyo: starting to look at a range of investment options that would include collective investments like money market funds or unit trusts.
“But it starts with the initial, simple step of opening a savings account,” she says.
Brought to you by Standard Bank.
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