Save away for rainy days during National Savings Month
Keep the following in mind when discussing saving and investing with a partner, family member or financial planner:
These top ten savings tips will help residents celebrate National Savings Month this July and help provide the extra penny for retirement or that around-the-world trip.
“To achieve financial freedom, you need to defer some of today’s consumption for tomorrow’s use,” PSG Financial Planner of the Year 2015 Riaan Strydom said about planning.
“While National Savings Month is an incentive and reminder to get saving and investing, keeping momentum throughout the year is the real trick.”
• Make saving a habit, like eating: Saving should be what you do on a regular and disciplined bases before you spend or consume, not after. Savings are not the pennies you have left at the end of the month, Strydom warned.
• Identify objectives and choose the appropriate way: Differentiate between short, medium and long-term savings as this will determine your asset allocation in your portfolio. Short-term goals are any savings you mean to achieve in the next two years, medium-term in the next five years and long-term after that.
• Understand risks and opportunities associated with asset classes: Cash is suitable for short-term savings as it creates certainty of the outcome (getting your money back) but is not suitable for long-term as the growth is limited. One does not earn interest on cash. Equities on the other hand are not suitable for short-term savings because one could end up with less capital than was invested; in the long-term however they offer great rewards in that they beat inflation by a healthy margin.
• Sort out short-term savings: Look at investing short-term savings in an interest-bearing way like with a money market fund, a conservative collective investment or unit trusts. This will give you certainty of the outcome without taking a large risk. Strydom advises against financial products that limit access to your investment.
• Provide for medium-term savings: Look at a balanced fund for medium-term, where an experienced fund manager will make difficult asset allocation decisions on your behalf and aim for the best growth possible. Strydom advises against endowments which limit access to your investment.
• Lead the way to long-term wealth: Focus on achieving the best inflation-beating growth possible. Include as many growth assets, such as local and off-shore equities, as possible because these give you the best chance possible. Retirement annuities can be very useful in structuring these investments in the most tax-efficient manner.
• Be tax savvy: Know your tax position as this will impact which savings vehicle you use. With a low tax rate, do not use an endowment which has a higher tax rate than you would pay in your personal name. With a high tax rate, tax-free savings accounts or retirement annuities offer the opportunity to invest and pay less tax than you would in your own name.
• Become a budgeter: Have a proper household budget and manage your finances accordingly. Most people do not have a clue what they are really spending their money on; a budget can be a real eye-opener. Less take-out meals now can translate to real wealth in future.
• Teach your children: Carry your knowledge and value of saving over to your children at an early age. Teach them the principles and benefits of saving and reward them for it.
• Seek professional help: Consult with a financial planner as it can help you structure the correct financial plan given your unique circumstances and objectives.
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