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Yes, you can save

André Wentzel, 8 August 2018

South Africans have been branded the worst savers in the world, and local economists warn that saving will become even harder if the slow economic growth experienced in 2017 persists.

Many people don’t save because they don’t see where they can free up cash in their constrained budgets. And those who have some contractual savings in place rarely increase their contributions beyond the annual increases mandated by their product providers.

Contributing just 5% more to your savings vehicle can help you reach your goal faster. Similarly, paying 5% more than your minimum monthly instalment can substantially reduce your debt repayment period.

Sanlam’s calculations show that if a person earning R25 000 per month contributes 15% a month towards their employer-sponsored retirement fund, their monthly savings would be R3 750. If they saved this amount for 40 years, increasing with inflation, they could get 66% of their pre-retirement income when they retire. If they saved just 5%, or R188, extra per month, they could get 69% of their pre-retirement income. But if they also increased their contribution annually by 1% more than inflation, their retirement income could increase to 80%, assuming an inflation rate of 6% and an investment return of 9% per annum after fees.

Note that the illustrative values provided above are not guaranteed and should not be seen as an accurate forecast in any sense.

Saving or putting more money towards monthly debt repayment is quite possible, even if you live pay cheque to pay cheque. The trick is to break the hand-to-mouth pattern. A strategy of saving whatever is left after spending is unlikely to succeed or get you out of the pay cheque to pay cheque scenario.

Here are some tips to help you get started:

  • Pay yourself first. Put money towards saving as soon as you get paid – automatically deducting this from your salary is the best way to do it.
  • Increase your debt repayment debit order. Don’t try to pay extra only if there’s money left after spending.
  • Save towards a goal. Whether it’s a deposit on a house, your children’s education or a comfortable retirement, it’s much easier to save if the savings goal is real and important, rather than vaguely saving because ‘everyone needs to save’.
  • Reassess your debt. Try to stick to good debt like a mortgage bond or studies, and use cash for other expenses instead of credit or store cards. You pay high interest on short-term debt, so make it a priority to settle it promptly. Once that’s done, save the money that used to go towards debt repayment.
  • Keep a lid on non-essential expenses. Start recording your expenditure on non-essential items. Decide which of these you’re willing to give up. Also try cheaper alternatives for activities you engage in quite frequently.

Sanlam Life Insurance is a licensed financial service provider.
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