By Dominique Bowen
ONLY 6% of South Africans can retire comfortably with the savings they have, according to the National Treasury. We are a country of spenders, not savers, and it has taken a pandemic for us to face the music.
Recent research by data analytics giant Kantar has provided some telling insights that could be the key to understanding the obstacle to saving: we do want to save, and we know why it’s important. What stands in our way is that we find formal bank offerings complex and intimidating.
For many, saving may feel like a luxury, and this perception could be the greatest obstacle of all, says Katlego Gaborone, a Momentum financial planner. “Having the incorrect attitude towards saving will stop you from achieving your financial goals,” he says. “You shouldn’t overcommit and unrealistically change your budget just to commit to saving, but rather ensure that your budget accommodates saving.”
Making this possible starts with three key ingredients: the correct knowledge, tools and attitude. “Because of economic challenges, many live hand-to-mouth, making it somewhat impossible to save,” Gaborone says. “However, with these three ingredients, saving can become second nature.” Here’s a round-up of accessible savings vehicles to get you started.
A PLAIN SAVINGS ACCOUNT
Everyone needs to start somewhere, and opening a simple savings account with your bank can be the first step on your savings journey.
Depending on the institution, you may be exempt from paying a monthly fee, not have to worry about meeting a minimum deposit requirement, and can still access your money any time. It’s the ideal vehicle to help you get into the habit of saving, and you’ll be rewarded with a little interest for your dedication.
“In recent years, banks have also introduced a subtle way to get their clients to save without it feeling like they are actively saving,” says Gaborone. “Each time you use your bank card, a fraction of the amount used is saved and put away in a ‘savings pocket’ on your account profile. Percentages can differ from 5% to 30% and possibly more, allowing you to spend and save simultaneously.”
GO TAX-FREE WITH A TFSA
A major drawcard of tax-free savings accounts (TFSAs) is that you earn taxfree growth on your capital, and you can maximise this benefit by investing up to R36 000 a year, or R500 000 during your lifetime, across your TFSAs.
Some banks allow you a minimum opening deposit as low as R250, making these benefits extremely accessible.
Gaborone says although TFSAs do offer flexibility with immediate access to funds when needed, there are unfavourable implications if you withdraw early. This is because withdrawals are counted as future tax-deductible withdrawals on the overall tax-free withdrawal limit.
There is no minimum age for opening a TFSA (although minors do need to obtain consent from their parents), but Gaborone cautions parents and guardians: “Be careful if opening a TFSA under a minor’s name as it will impact their lifetime allowance in making withdrawals at a later stage, if they make withdrawals while they’re young.”
Opening and topping up a child’s TFSA can create the perfect nest egg for their long-term goals – just be sure to harness the benefits of the account in their best interest.
As a TFSA is better suited to a long investment game, it could be an ideal supplement to retirement savings.
A 32-DAY NOTICE ACCOUNT
As the name suggests, this is a longer-notice account than others, but where it is less flexible in offering quick access to cash, it makes up for in low minimum deposits (as little as R100 depending on the institution) and often zero monthly fees.
Staying invested for the long haul and topping up when you can has sweet rewards to the tune of tiered interest rates. This means that the more money you store in the account, the higher the interest rate it will attract.
Although early withdrawals from a 32-day notice aren’t encouraged, if you’re really pressed you can access your funds. You will be penalised, though.
A FLEXIBLE UNIT TRUST
Unit trust funds are geared towards those who stay the course, and reward you the longer you stay invested. From a regular contribution as little as R300 a month or lump sums around R5 000 depending on the institution, you can invest in your choice of funds for however long you want, and add to your savings whenever you want, with access to your money at any time.
NEVER MIND THE JONESES
You have the tools to make your goals tangible – as long as you stay focused and don’t allow comparison to be the thief of your savings. “Just start,” says Gaborone. “However little the savings/ contributions may be, just start! The power of compound interest is amazing.” Stick to your course, your budget and your goal, and you can’t go wrong.
Dominique Bowen is a freelance writer specialising in personal finance issues.
PERSONAL FINANCE