YOU know the importance of saving money, but perhaps when it comes to starting your plan, you don't know where to find the money or where to invest it?
Maybe this is why you have never started an investment?
By saving, you will prevent yourself and your family from suffering future financial hardship. Protect your future and get the best out of life.
If you have money in reserve for a rainy day - your child's education, that dream holiday, your child's dream wedding or your retirement - you are better protected, you are better covered and, best of all, you are in control.
It does not matter if you have savings that boom in value, if their combined worth is minimal and you die or are disabled, leaving your family with insufficient income.
So, your first step is to ensure that you have the correct amount of life and disability cover.
Then get your debt under control.
It is pointless to try and save when the return on your savings is less than the interest you pay on credit.
So, before you consider saving, read this:
Your first priority is to create a savings account with five to six months' worth of your living expenses. Money you can immediately get to, should you need to. This will help prevent you having to use your investments and affect their future value.
Our greatest savings goal is a comfortable retirement, so you need to try and save the maximum you can in either your company pension plan or your own retirement annuity.
Where do you find the money to invest?
You don't need extra cash to save. You need to create the cash with which to save through a budget. Set spending goals that then allow you to allocate some of your monthly money into a savings plan. When you receive lump sum windfalls, save them first. It makes budgeting so much easier. Saving just R50 every month can add up to a substantial amount over time.
Simply put this is the interest on interest that you earn. From your first month, you earn interest. That is then added to your next month's saving amount. Then both amounts earn interest. The same happens with the third month and so on. The more you save today, the more you'll have tomorrow.
Forgo one daily cappuccino at R8,50 and invest it.
Assuming a return of 10 percent per year, you'll have over R317000 in 25 years. Increase that by the annual rate of inflation (8percent) and you'll have over R642000 in the same time.
Time makes money, so start early.
You know that R100 today will buy far more than R100 in 10 years' time. In other words, the future value of your money is less than today. So you need to compensate your savings to meet the threat of inflation. Every year, you should increase the monthly amount you save by at least the inflation rate.
That way you cater for the effect of inflation and make your future money worth something.
Where to save
Saving is a short-term method to accumulate money. That means you will need to use some or all of it within the next few years.
If you want to save for five years or more, you are really an investor.
To be able to use your money at short notice, you should not commit to a long-term plan such as an endowment or unit trust. These investments have costs and it takes time to recoup these expenses.
Ideally, your savings should be in a bank. The best product with a bank is a Money Market Account or Fund. But, they do require quite high minimum balances. While you are saving towards that minimum balance, use a normal savings account.
Bank accounts return interest and that is added to your total income for tax. Don't be too concerned as Sars has given us reasonable deductions from income tax, for interest earned. You need a fairly large amount in savings accounts before you are liable for tax. Check with a tax adviser if you are concerned.
The effect of compound interest is huge. That's why it is called the Eighth Wonder of the World!
But, it requires time to work. So the sooner you start, the sooner you reap the rewards. - pyburn.co.za