Plan, plan and plan some more

Private Property South Africa

Speak to any financial adviser and they will inevitably tell you that your financial needs will change significantly as you enter different stages of life. While saving for retirement tends to get the lion’s share of attention, there are other things we need to save for along the way.

According to Estelle Scholtz–Mare, Head of Marketing for Financial Wellness at Momentum, a successful savings strategy consists of four elements: short-, medium- and long-term plans, and an emergency fund.

Short-term plan

Short-term savings can be defined as anything that you would usually use store or credit cards for. This can include new furniture, a holiday, a big ticket item like a sound system or a set of high-end golf clubs. In other words, luxury purchases.

Says Scholtz–Mare: “Saving for luxury purchases instead of financing them achieves two benefits – no interest payments and if anything happens to your income flow, you can put a hold on the purchase of the item. When you buy items on credit you are committed to the payment, irrespective of your circumstances.”

Products that suit short-term savings plans include bank savings accounts, call accounts, fixed deposits and money market accounts. Scholtz–Mare adds that lifestyle purchases should never be financed as they depreciate. Financing depreciating assets saps wealth and compromises your financial wellness.

Medium-term plan

A medium-term strategy ( three to five years) can be adopted for more expensive purchases. This could be a child’s university education, a wedding, the deposit on a home, home renovations or a new car.

Scholtz–Mare advises spending some time carefully planning how much you will need to save and then set up a systematic savings plan (for example, a debit order off your bank account).

Examples of medium term savings products include unit trusts, money market accounts, longer-term fixed deposits and endowments. Unit trusts and endowments are ideally suited to five-year plans because they are affected by equity markets and need time to grow.

Long-term plan

Long-term savings plan are typically orientated towards retirement but you may want to save towards other long term goals such as your child’s education notes Scholtz-Mare.

In terms of retirement savings, structured and tax effective products like retirement annuities are advisable. You can also consider a mix of stocks and unit trusts. Retirement products should be considered as ‘no-go’ areas, in other words – untouchable. You need to save 15 to 20% of your salary for at least 25 years to ensure that you can enjoy a sustainable retirement.

Emergency plan

According to Scholtz-Mare this is perhaps the most important plan. It prevents you from touching your retirement funds in the event of a crisis. In line with this, keep six months’ worth of your income in an investment account that is easily accessible when you are in dire need of cash.

Boost your cash

If you’re looking to boost your savings, consider a new debit order investment or increase an existing debit order says Nick Battersby, Chief Executive at PPS Investments.

“The minimum amounts required for debit order investments are generally manageable and, by adding to your savings portfolio on a sustained and regular basis, you could accumulate a significant investment over time,” he says.

Another way to boost your cash is to pay off any debt you may have incurred as quickly as possible, cut down on your expenses and avoid reckless spending.

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