JOHANNESBURG – While it’s becoming increasingly difficult to find the extra money each month, the concept of saving seems fairly straightforward to many of us. Investing, on the other hand, often comes across as more of a complicated exercise.
While they both involve keeping a portion of your income aside for future use, investing targets growth so that your money actually makes more money – and it’s easier than you think.
According to Prudence Thipe, General Manager at Old Mutual, understanding the difference between the two is the first step toward realising your financial goals.
“Saving simply means not spending. So, if you put money away each month in a jar or under a mattress you are saving but it won’t grow. Investing is the next step – it’s what you do with that saved money, and how you grow it.”
According to Thipe – this is where many of us fall short. “The latest Old Mutual Savings and Investment Monitor revealed that 76% of black households made use of informal savings vehicles like stokvels, unbanked cash savings, grocery schemes and burial societies with 34% of stokvel assets unbanked or held in cash.
These vehicles are necessary to avoid incurring rotating debt; however -choosing inappropriate investment vehicles for your savings means that you will not generate returns that will grow your savings.”
“For example, if you need quick access to your savings – or liquidity – then you need a savings product that allows for this, so think of a money-market bank account or fixed income unit trust. While the returns may not -shoot the lights out, your money is stable and you can access it at any time with little to no disinvestment costs. Drawing cash from a long-term savings product like a retirement annuity (RA), pension or provident fund is either impossible or it comes with tax implications or disinvestment charges,” says Thipe.
And saving for your future? When your money goals are longer term – like saving for your child’s education or for your retirement – you have a longer time horizon.
This means you need an investment vehicle that provides growth or has a tax benefit, or one where you cannot access your cash easily in the short term. “Tax-free savings accounts, RAs and occupational pension or provident funds are great options for specific longer-term goals and each has different benefits.”
According to Thipe, the next step is to make sure you stay on track. She suggests two ways to do this. Firstly, motivate yourself: “As human beings, we need to be encouraged to grow our financial know-how about investing wisely. This is especially true for South Africans where making ends meet is a daily challenge.
“The recently introduced Old Mutual Rewards – a rewards programme that is free and open to all South Africans – is designed to encourage and reward responsible money decisions. By rewarding you for taking the right financial steps, you’re motivated to take the necessary action to stay on track and reach your goals,” says Thipe.
Lastly, Thipe highlights the importance of partnering with a financial adviser to help you build a holistic financial plan that is right for your needs.