Saving money on a regular basis is something that more South Africans should be doing. It’s a way of “hedging your bets” for times when your income may dry up or get put under pressure by unexpected bills and unplanned expenses.
However, there is more to saving than you might think. While it is not exactly rock science, a significant percentage of the population who do save, don’t save to best effect and here’s why.
Be careful about over-insuring
Being insured is a great way of making sure that you don’t run into financial trouble when something like a costly appliance gets damaged, or your car breaks down. The problem, however, is that a lot of South Africans over-insure. Its very easy to so as each time you buy an appliance of some kind, the store staff always try to sell you extended insurance or guarantees.
The most important things you should ensure are those that will get you into serious financial difficulty should you lose them. Your house is, of course, a must, and so too are things like personal insurance against getting injured and becoming physically (or mentally) disabled.
Don’t insure every little thing. Take cell-phones for example. If you lose your mobile or it is stolen, it’s not the end of the world. Whatever you save on only insuring the essentials you can put into a savings account instead. You will be pleasantly surprised at how quickly your savings will mount up. There are many areas you can check-out to make savings as referred to on this Money Savings Tips article.
Think about inflation
We all hear a lot about inflation, and for many South Africans, it’s just a part of life that has to be suffered. However, if left unchecked, it’s something that can do long-term damage to any savings you have invested.
Just because you put money aside on a regular basis, you might get lulled into a false sense of security. The problem is that any inflation will erode the real value of your savings, especially is the inflation rate is high. It has just dropped down to 4.9% from a ten-month high of 5.1%.
The “Pure Savings Account” as offered by Standard Bank SA is one example of a simple savings account. It only offers an interest rate of up to 2.6%, so at current levels savings in this type of account are losing 2.3% of their value in real terms. It may not sound much, but it is a continuous erosion.
Seeking out higher interest rates
You will do far better to find an investment vehicle that offers more interest – something like 10% or more, and compounded You do, however, need to tread with care. Higher interest rates usually mean some element of risk, and some restriction on when you can take money out, how long it takes to action a withdrawal, and how much you can access in one go.
Like anything to do with your personal finance, unless you are financially literate, it’s best to seek out professional advice.
There is one other thing you ought to be be aware of, and that is not to be afraid of taking on debt. Sometimes it is the only way out of a particular situation and providing you do your research properly in terms of the duration of the loan, the total amount of interest you will pay, and what happens if you do default on repayment, this can be a worthwhile alternative to disrupting your saving habit. Once you break a habit, it can be hard to get back into it again.