The South African Savings Institute (SASI) in association with Absa is again running its annual series of #waystosave webinars featuring leading personal finance experts this July Savings Month, with sessions focused on student saving, stokvels, entrepreneurs and female financial fitness. A wealth of practical information on savings resilience and money management continues to be shared, with many focusing on finding financial resilience. Both the 2020 series and the new 2021 series can be viewed at www.waystosave.co.za.
To celebrate SASI’s 20th anniversary this year, here are twenty key learnings from the initiative:
LEARN TO SPEAK MONEY LANGUAGE
SASI CEO Gerald Mwandiambira emphasised that it’s key to open those bank statements, portfolio reports and bills. “How do you speak the language of money? Understand the numbers and manage them. After all, the numbers don’t lie! If you’re not talking to your money, it’s not talking back to you.”
LIVE BELOW YOUR MEANS – AND INVEST THE DIFFERENCE
Living below your means affords you the freedom to save and invest. Don’t get trapped in the lifestyle creep circle, where the more you earn the more you spend. Mwandiambira says the Covid-19 crisis has highlighted the importance of having a plan in place and being in charge. “My acronym is FATE: be in control of Food expenses, cut back on your Accommodation and Transport costs, and rethink your Entertainment and even Education. Even before the pandemic, South Africa was mostly a nation of non-savers, with finances in poor shape. We need to now see what we can do to rebuild our fragile financial situations.”
MANAGE YOUR CREDIT
While many of our peers in SADC, sub-Saharan Africa and BRICS have positive savings rates; South Africans save substantially less than them. Personal finance journalist Maya Fisher-French believes that easy credit is to blame, which hasn’t allowed people to build a culture of saving. “In many other countries, if you want to buy something you save for it. In South Africa, people don’t think like that: they think in terms of ‘how can I access credit’, and often don’t even consider the interest rate,” says Fisher-French. “South Africans pay R168 billion a year in fees and interest on credit. Imagine if that was channelled into investments!” Fisher-French believes this figure could make up the savings pool of the country if people could change their savings culture and spending patterns. They don’t, she says, because most people do not understand how much they pay in fees and interest, given that these amounts are often not transparent.
“The worst offenders are credit cards. If you spend R20 000 on a credit card and never touch it again, thereafter paying only the minimum monthly repayment, few people would be aware that it would take them 25 years and R53 600 to finally pay off that balance at an interest rate of 20% to 25%. From my experience, most people imagine it would take them about two years to pay it off, because few realise they are paying roughly 3% of a reducing balance, not a flat percentage. If a person is constantly using their credit card, this slowing-down effect becomes obscured,” says Fisher-French.
A credit card acts as a revolving loan. It’s important to pay off the outstanding balance monthly. Keep limits low and use it as a transactional tool, rather than funding your lifestyle on credit. Use the Credit Card Debt Pay-off Calculator in excel to understand what you’ll really pay.
USE BUDGET FACILITIES RATHER THAN REVOLVING CREDIT
If you are in a situation where there is a big-ticket item you decide to purchase on your credit card and plan to pay it off over a few months, then you should rather use the budget facility – as this acts as a term loan rather than revolving credit. You can select to pay off the item over three, six or twelve months, and the instalment is shown as a separate item on your credit card statement. Although the same interest rate will apply, if you meet those budget repayments, your purchase will be fully paid off over the period you selected.
PROTECT YOUR NAME AND KEEP A GOOD CREDIT SCORE
It is better to have just one credit agreement that you maintain well, than having multiple accounts which you fail to repay.
Fisher-French says a number everyone needs to know is their credit score. Go and get your free credit report, which you can get from each bureau once a year, and if there are any errors, make sure to log a dispute. Paying off your credit card in full each month would indicate a healthy consumer. Having more than two retail or clothing accounts, more than four enquiries on your profile in a 12 month period (excluding your own, your employers or insurance companies) and maxing out available credit lines can have a negative effect on your score.
When it comes to buying a house or car, a bank would consider both your affordability as well as your credit score. Your affordability will determine how much the bank will lend you, but your credit score determines your interest rate, or whether the bank will even lend to you at all. And remember, your payment history remains visible for 24 months.
SQUASH DEBT!
Debt is expensive. Before you think of saving or investing, you should work at settling your debt. This will decrease your liabilities, moving you closer to a more positive net worth.
Step one to tackling your debt is to understand what you owe and the interest you’re paying. Itemise all your debts with the categories: Name, Type, Balance, Payment, Interest, Fees, Credit Insurance, End Date. Fisher-French recommends the Snowball approach to settle your debts: Take your smallest debt, pay it off, and close the credit facility so you are not back in the same situation next year. Take the instalment you were paying to your first loan and add it to another debt repayment so that you pay off that debt sooner. Keep doing this until all your debts are paid off.
HAVE A PLAN
Kristia van Heerden, chief executive of Just One Lap and host of The Fat Wallet podcast, points out that people would not consider starting up a business without having a business plan demonstrating containment of expenses and the revenue levels needed to cover expenses, which produces a profit at the end. Yet few salaried people think of applying that same discipline in terms of a financial plan to their personal lives and salary. Think about your personal finances as a business. You should have a plan with goals, strategy, projected earnings and expenses, and risk management, which includes including insurance and an emergency fund.
IMPROVE YOUR SAVINGS RATE
Van Heerden explains that the money you put towards your future (including your savings and debt repayment) each month, divided by your income, is your savings rate. You should aim to increase your savings rate each month.
INVEST, DON’T JUST SAVE
Putting money away for a specific goal is Saving, putting your money to work with a long term view is investing. We need to save to get to the point of investing. As Fisher-French says, ‘If you don’t tell your money where to go, it will leave.’
START SAVING AND INVESTING EARLY
As Mwandiambira says, money and time are friends. If you save R3,000 per month with a 10% return from age 25, you would have R 15.9 million at age 65. If you did the same from age 35, that number drops to R 5.9 million.
START A TAX-FREE SAVINGS ACCOUNT
Tax free savings accounts are an important part of your long-term savings plan. You can only have one tax free savings account, but remember you can open them for your children from birth. You can invest R36,000 per annum and R500 000 per life in a tax free savings account. Many tax-free savings accounts such as those offered by SatrixNow have no minimum deposit, so you can start with as little as R100. If you put R2 750 per month into a Tax Free Savings account, in 15 years you would have saved over R1.1 million tax free.
CHECK YOUR CREDIT INSURANCE
If you are being retrenched or forced to take unpaid leave due to the lockdown, Fisher-French points out you may be able to claim from your credit insurance policy. In the case of store cards it is often described as “balance protection”. Credit insurance could cover your payments, depending on the policy, if you are retrenched, experience a loss of income due to your employer requiring you to take unpaid leave or being unable to pay you, if you contract Covid-19 and are unable to work or if you are disabled or die.
AVOID PAYMENT HOLIDAYS
When you take a payment holiday, your interest is capitalised. What that actually means is you’re going to be paying that loan off for more than a year longer and you’ll pay much more interest. If you have taken a payment holiday, you need to increase your repayment by 5% when you can to catch up, or increase it by 1% every year. If you have a R1 million mortgage with 180 months left, how a 3-month payment holiday could end up costing you R106,000 in interest.
DIRECT YOUR SPENDING
Impulse buys can mean you waste a lot of money. Financial journalist Arabile Gumede says we should avoid this by unsubscribing from all marketing mailers and waiting for 24 hours before spending on big ticket items.
AVOID EMOTIONAL SPENDING
What is the best way to deal with compulsive emotional spending? Identify and treat any underlying psychological or emotional conditions such as depression – you may need to get professional help
Limit or destroy your credit cards, and consider handing over the management of your finances to someone else should that be necessary.
EXPLORE STOKVELS
Saving in a stokvel can be a good solution, giving you group support and motivation as well as being able to use group solutions, according to Mwandiambira. But ensure that you know every person in the group and you have similar motivations.
ADJUST YOUR LIFESTYLE TO FINANCIAL CIRCUMSTANCES, SUCH AS RETRENCHMENT
If you are retrenched, Mwandiambira’s advice is to adjust your lifestyle, but don’t stop living. Good ways to save include reducing entertainment and luxury expenses, shopping smarter, reviewing your bank account and bank charges, disposing of assets you don’t need and considering downgrades on major expenses.
DO MIX MONEY AND RELATIONSHIPS
Four out of ten marriages end in divorce, and mostly the underlying driver is finance. Mwandiambira even recommends that young couples do an ITC check on each other! Mapalo Makho recommended setting up a regular money date to discuss your financial plans, and to see a debt counsellor if necessary.
MANAGE FAMILY COMMITMENTS WISELY
When dealing with family commitments or ‘black tax’, speakers suggested choosing wisely what you will support. Avoid getting into debt to help people, do what is reasonable and within your affordability.
You need to be realistic – and ask yourself if you are enabling a negative situation and creating dependencies. Set clear boundaries - have a defined amount saved each month for the family and carry it over for emergency family access It’s wise to have an expert shield – ‘My financial planner says….’ You can also try to give your family ways to create income.
SEEK HELP IF YOU NEED IT
As Dr Lesego Rametsi of Absa believes that in every challenge, lies an opportunity. “We have an opportunity to reset our lives and focus on all facets of health and wellbeing. Make choices today that will improve your health – from a physical, mental and financial point of view. Seek assistance if you’re battling – from employee assistance programmes or support organisations like the South African Depression and Anxiety Group. Remember it’s never too late to change your financial journey – make simple changes and look for the small savings.”
PERSONAL FINANCE