We know, we’re being a buzzkill. But your savings are really important and the sooner you start, the easier it is. In fact, if you can start saving from your very first pay cheque, you’ll be setting yourself up for longterm financial stability. Which is vital!
According to 10x Investment survey, only 6% of South Africans are saving enough to be able to retire comfortably. And only 35% of Millennials are investing long-term. Be on the right side of the stats with these things you need to be saving for now.
1 Paying off debt
Before you can start saving for anything moving forward, you have to work towards being debt free. This includes being free of house or car repayments, an overdraft or any credit card debt.
‘The best investment you can make when you’re young is to get out of debt first. You pay a higher interest rate than you would earn anywhere else on your money. Pay off all your debt as soon as possible. Increase your monthly installments on your debt if you can afford it and that will allow you to quickly pay it off,’ says Barbara Mundell, a technical specialist at the Financial Planning Institute. ‘The average person takes six to eight years to pay off a three-year undergraduate degree, so it’s important to pay off as much as possible. The more you increase monthly payments, it reduces the monthly interest on that debt and you can pay it off sooner and start saving for other life goals.’
‘The average person takes six to eight years to pay off a three-year undergraduate degree…’
Ask yourself some questions: How much do you have saved right now? When do you hope to retire? What do you envision retirement looking like for you? How much should you be contributing monthly to get there?
‘It depends on how big of a priority your retirement savings are to you, and what you want to achieve, I know people who put 30% of their salaries away because they’ve made the conscious decision that they want to travel when they retire,’ says Mundell.
According to Sylvia Walker, an author and financial planner: ‘The longer you leave it the more money you’ve got to put away. The rough rule is putting away 15% of your income, but if you can’t afford it start with less and increase it over time. As you climb the corporate ladder you must increase it.’
Saving for your pension has numerous benefits, including a tax break. You get a tax break if you save for retirement via contributions to your retirement annuity (RA), pension or provident fund. ‘The reason government does this is because it removes the burden from government to look after you in your old age,’ says Mundell.
3 Unexpected healthcare costs
Health is important, don’t think that just because you’re young, you’re invincible, it’s good to have an emergency stash set aside for any incidents, especially if you don’t have medical aid.
‘The goal for any emergency fund is to have three months’ worth of take home pay, that’s the end goal but obviously that’s going to take you a while,’ says Walker.
‘Even if you only put R50-100 aside every month, do it. Do what you can but commit to it. Open a separate bank account so it’s not a part of your usual transactional money.’
‘If you’re planning on renting, you will need the first month’s rent and money for deposit…’
Living at home is perfectly acceptable and a great way to save money, but if you really want your own place you will need to be clever. If you’re planning on renting, you will need the first month’s rent and money for deposit, which is usually double the rent. If you’re considering buying a property, you will need at least 10% of the purchase price for a deposit, plus a stable income to secure a home loan.
5 Family contributions
Many of us are helping to assist our families financially, whether it be contributing a monthly amount, or helping pay for costs ad hoc. Either way, you’ll make things much easier for yourself if you put away monthly into a savings or Money Market account. You can then dip into this when needed – plus, the money will earn interest while it sits there, helping to top up this fund for you. This kind of fund is especially helpful for big, unexpected family costs, such as a wedding or funeral.