While many may dream of winning the lottery, the fact is that the large majority of South African consumers probably won’t.
“However,” says Adrian Goslett, CEO of RE/MAX of Southern Africa, “this does not mean that it is impossible to accomplish financial goals or be able to buy the property you want in the future. It does mean however, that those things may take a little longer to achieve, and the tried and tested method of steady saving and investing will guarantee its possibility.”
He notes that South Africa generally has a poor savings culture due to the high debt-to-income ratio that is experienced by many consumers in the country. “The fact is that there is no immediate solution to a high household debt-to-income ratio and it will take time and discipline to overcome. While some conditions such as the low interest rates have assisted consumers to reduce debt levels, other elements such as the rising cost of living have continued to place pressure on many South African consumers,” says Goslett.
He adds that eliminating unnecessary spending will definitely be the first step towards being able to save. “Regardless of the amount of money that the consumer earns in a month, reducing spending will be crux to gaining control of their finances and building a savings reserve. The reality is that many people live beyond their means and spend everything they earn. Where possible, they should relook at certain areas of their budget and adjust what they can to reduce money spent on items that are not needed.”
Goslett says that savings is not necessarily about the amount of money that is set aside, but rather the fact that the money is set aside on a regular basis, preferably from each pay cheque. “A consumer can determine how much they would like to save each month depending on their circumstances, but it is remarkable how much money can be saved over a period of time, if regular contributions are made into the account,” he says. “Over time the consumer will be able to see the benefits of a steady savings plan and reap the rewards of earning compound interest, which is interest earned on interest.”
Aside from the fact that financial institutions require most homebuyers to have a deposit when applying for a bond, Goslett notes that a strong motivating factor for potential homebuyers to save is the fact that their negotiating power goes a lot further when they have a lump sum to use as a deposit on a home. A home loan applicant with a substantial deposit towards their home could receive preferential interest rates, and may be able to afford a bigger home loan amount and therefore a bigger home. A large down payment will also reduce the monthly bond repayments. He adds that savings will also be useful to the cover additional costs of the property sale transaction such as the transfer duties, registration costs and attorney fees, among other items.
“Having a saving reserve will not only help a consumer to achieve their goal of home ownership, it will also benefit them once they are homeowners and require extra money for upgrades, renovations or any unexpected circumstances. It is important for consumers to have savings set aside and to manage money efficiently to ensure their financial well-being both now and in the future,” Goslett concludes.