South Africans typically have a bad savings culture, and consumer behaviour shows a tendency by South Africans to rather ‘borrow to buy’ instead of saving up for a purchase.
Saving takes discipline and means spending less than you earn, but how many people, despite numerous warnings over the years, have actually adjusted their lifestyle and spending habits to accommodate some kind of savings? Not many at all according to Glenn Norton, Broker/Owner of RE/MAX Masters, which operates in the Johannesburg suburbs of Bryanston and Weltevreden Park.Norton says that what many people don’t realise is that a small saving can actually have a huge effect, especially if that saving is on a bond. He cites an example of a home loan of R750 000, paid over a 20-year period at 9% interest, where monthly instalments would be roughly R6747.
“If you had to pay R100 extra into your bond each month, you could save in the region of R40713 over the bond period. If you had to pay in an extra R200 each month into this bond, you would save around R77 271 over the total bond period,” Norton explains.He says that most people eat out at a restaurant at least twice each month, and since saving involves a change in consumer behaviour, Norton says homeowners should consider only eating out once a month instead, for example, and putting that the money that would have been spent at the restaurant into the bond instead. “An average meal out for two people could come to around R400, but if you had to rather pay that into the bond as mentioned above each month, you would save a whopping R140 382 over the term of the bond.”
But Norton says just because you are saving into your bond doesn’t mean you should reduce the term. He says that by comparison, if you had to put R10 000 into a typical savings account at the bank, the most interest you could expect to earn would be 5% at a push. But one capital payment of this amount into the bond would save you an effective 9% interest. “As your salary increases, so too should your bond repayments, and if you get a bonus or any other lump sum payouts, consider paying some or all of it into your bond,” advises Norton. “If you had to put in a lump sum of R10 000 every year for ten years and pay an extra R800 into your bond each month, you could save over R200 000 in interest and could shorten your payment term by about five years.”Adrian Goslett, CEO of RE/MAX of Southern Africa, notes that the Savers Review released by the South African Savings Institute in November last year indicated that many South Africans have in fact started to increase their level of savings. Savings in South Africa as a percentage of GDP were at 18.8% in 2008, and while they decreased to 18,4% during 2009, undoubtedly as a result of recessionary effects, they increased to 20,4% in 2010.
However, research indicates that different income groups view savings differently, and according to the Bureau of Market Research, low and middle income groups lack confidence in their ability to save. However, it is in these income groups where a culture of saving would be most beneficial.”“What could you do with an extra R100 000 or R200 000?” asks Norton. “Even with the property market having experienced a decline, paying money into your bond is still the best form of saving. Over the past ten years property has outperformed most other investments, and property remains one of the best asset classes in which to invest,” he concludes.