So, what are savings? And why should I save?
Savings is money that you do not spend or use – instead, it’s set aside for future use.
It’s really important to put money aside every month – whether it’s for your children’s education, a new car, your old age or an unplanned emergency. Life doesn’t always turn out as planned, and most of us will face a crisis or an emergency at some point. Having savings to tide you over during these times means you won’t need to go into debt.
Start saving early
This is something you’ll hear again and again – that’s because saving is crucially important to ensuring your financial health.
Over time, the amount you save every month makes a much bigger difference than how much you earn. Starting to save earlier will help you get:
•the best value out of term
•higher compound interest
A good motto to remember is “Save it and forget about it”!
Remember: Stick to your budget and get rid of any debt as quickly as possible. This will free you up to have more disposable income.
Plan and Budget
This is your first paycheque so it’s okay to put a small amount aside for a splurge. But remember to have a plan for the rest.
Your plan should include:
•Any study or other debt you have
•Your budget for the month
•Savings (including short term and retirement savings).
Watch your money grow
If you’re disciplined with your savings, you’ll start to earn compound interest – that is, money that you earn on your interest.
If you put R100 in the bank and the interest rate is 10% you will have R110 at the end of the first year. You will have R121 at the end of the second year and you will earn more money every year if you don’t touch it.
How much is enough
It’s best to put away as much as you can for a rainy day. But the general rule of thumb is as follows:
For general savings = try to save between 10 and 15% of your income.
In addition, for emergency savings = try to save between R2000 and R10 000.
Types of Savings
There are 3 kinds of savings: emergency, short term and long term.
•Emergency savings – this should be used for things that you haven’t planned for. For example, hospital visits, unemployment, car repairs or broken appliances.
•Short term savings – for big purchases, such as a car, washing machine or TV, or major life events such as a wedding or the birth of a baby.
•Long term – for when you retire or can’t work anymore.
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