To reach your goals you need to save money and not just rely on what is left over at the end of the month.
Saving is the act of delaying immediate spending until you accumulate enough to spend on something more worthwhile in future. This money should be saved in a specific savings account. A savings account helps your money to grow because it earns interest over time. Having savings gives you the financial peace of mind that you are prepared for the future and any of life’s emergencies.
Spend less = Save more
Want to start saving? Follow our simple 13-step process:
Remember: Savings is setting aside money you don’t want to spend now for emergencies and for future purchases – these are usually shorter term.
Investing
Investing is when you buy financial assets and put money in financial instruments for a specific time period in order to make more money and grow your wealth.
Investments should be made for longer periods that enable you to achieve the power of compounding and growth that is above inflation and tax. Compounding or compound growth is when you earn interest on interest. It is a way to make small amounts grow over a long period and it is what differentiates savings from investing. Read more about compound growth here. We have a great example of how compounding interest works here.
Investing involves buying assets such as stocks, bonds, and property, with the expectation that your investment will make money for you – these are usually longer term. It’s important to know the difference when it comes to choosing the right products for you.
Assets are sometimes referred to as ‘asset classes’, this is a name for a group of assets that share certain characteristics. Read more about the different kinds of asset classes here.
Should you save or invest?
You need to do both. You should have a bank savings account or money market fund or even a stokvel for shorter term goals like saving to buy a new fridge at the end of the year, Christmas spending or to have readily accessible money in the event of an emergency. Then you need investments for medium-term goals include savings for a car or a deposit for an apartment or a house and for long-term goals like saving for retirement or the tertiary education for your children need investments and long-time horizons.
Savings and investment options
There are many different types of savings and investment options. There are options that are best for short-term savings and include savings accounts, notice deposit, money market accounts and stokvels. While others like unit trusts, endowment policies, tax-free savings, RSA retail bonds are better options for medium-term investments. For long-term investments you should consider pension or provident funds and retirement annuities. Read more about these options here.
Learn more about unit trusts
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Saving for retirement
It’s important that you start preparing for your retirement from the day you start working. That’s because the longer you save for the more money you will have and the longer your money will have to grow, using compound interest.
At retirement you will want to maintain the same lifestyle had prior retirement plus there are added health and medical costs as you get older.
That is why’s it’s important to start as early as possible, to earn the benefit of compounding growth.
Most financial planners suggest that you save 15% of your salary towards retirement. The later you start saving the more you will need to save each month. According to the Sanlam Benchmark 2017, if you only start saving at 40, you should save 33% of your salary. Women may also need to save more as they are likely to live longer.
There are two main ways to invest for retirement either with a retirement annuity or an employer based provident fund.
Another benefit of investing for your retirement is that you receive a tax deduction of 27,5% of your renumeration capped at a maximum retirement contribution of R350 000 per year.
You must also remember that if you resign are retrenched or fired you shouldn’t cash out your investment. It is important to preserve your retirement investment by transferring them to your new employer fund or an RA.
Investing through a financial adviser
Knowing how to invest can be daunting, there are lots of different options that is why you many people use a financial adviser.
Financial advisers are trained professionals, they share their knowledge and expertise about financial products and are able to propose saving and investment options that best suit your needs. An accredited financial adviser must have a formal qualification, product training and they will do regular exams and continuous professional development to stay up to date with the law and the best products on offer.
Some financial advisers work for a financial product supplier and can only offer financial products from that company. In these cases, the product supplier takes full responsibility for the financial products sold, and the advice given to you.
Other advisers are independent and can provide you with a range of financial product solutions from multiple product suppliers. In those cases, the financial adviser is responsible for the financial advice provided.
An adviser normally charges an advice fee or earns commission from a product supplier for their services. If they will be receiving a commission, they need to explain to you how it will be calculated and the amount they will receive for selling you the financial product.
A good adviser should help you identify your life and financial goals, review your current financial situation relative to your goals and design a plan to help you do what you need to do to achieve your goals.
In fulfilling this role your adviser may:
• Help you reduce your debt.
• Help you make decisions about spending or saving.
• Help you understand the products in which you are invested or intended investing in.
• Help you understand the investment returns you need, how best to achieve them and how long you will need to remain invested.
• Help you identify the most tax-efficient and cost-efficient way of investing.
• Update you regularly on changes in regulations, tax and product offerings.
• Advise against scams and “get rich quick” schemes.
• Advise you how to protect yourself against financial risks such as death, disability and severe illness as well as the risk of large medical expenses and damage or loss to your property, vehicles and possessions.
It is important that you choose a financial adviser who is registered, adequately qualified and who is experienced. You can check with the Financial Sector Conduct Authority if a financial adviser is registered.
One of the most appropriate qualifications an adviser can have, is a post-graduate diploma in financial planning. An adviser with this qualification who belongs to the Financial Planning Institute can use the Certified Financial Planner accreditation.
Where to find a financial adviser?
Contact the following:
• Financial Sector Conduct Authority
Share-call: 0800 20 (FSCA) 3722
Tel: 012 428 8000
Email: info@fsca.co.za
Website: www.fsca.co.za
Services provided: verify the authorisation of a financial adviser
• The Financial Planning Institute of Southern Africa (FPI)
Website: www.letsplan.co.za
Services offered: list of certified financial planners
Investing directly
You can choose to go directly to a financial services company or use the internet. But remember that some financial products are more complex than others and if you do buy a financial product or make financial decisions without the benefit of professional financial advice, your overall financial goals and needs may not be considered or evaluated.
One of the best ways to save money is to set specific goals. Having a savings goal will help you commit to saving money and doing so regularly.
Start by thinking about what you might want to save for (such as a fridge, a car, a holiday, or further education). From there you can work out how much money you will need, by when, and what you are able to save each month. Then, you can calculate how long it will take you to save for your goal. Use our template here to help you set your goals.
Remember: Your savings goals should always be SMART. Specific, Measurable, Attainable, Realistic, and Time-based.
When choosing a savings product, you need to get the one that suits you the best and that will help you achieve your goals. Choosing the right products can be hard though and that’s where a registered financial adviser can help. We recommend you use the services of a financial adviser when planning for your future as they can assist you in making the best financial decisions for your lifestyle. Whether you’re saving for groceries or for retirement, or anything in-between, they can help!
Watch this video to learn more about the role of a financial planner.
These are for goals that will happen in the next one to two years. For this, you want a product that can earn some interest but is also immediately accessible if you need the money. Click here to learn more.
These are for goals that will happen in the next three to five years. For this, you want a product that can earn compound interest to help grow your wealth. Click here to learn more (part 1 & part 2).
These are for goals that will happen in the next five+ years and could even be up to 30 to 40 years. For this, you need products that will benefit from compound interest so that you can get growth that will beat inflation. Click here to learn more.
Want to learn more about savings and investments?
Savings: top tips on how to consistently save money and reach your goals as well as what savings products are right for you: click here to listen to them.
Investments: understand how to buy assets that will make money for you over the long term. It can be confusing but we're here to help with that: click here to listen to them.
Check out the recording of our Investing webinar to learn even more about this important financial topic. Click here
