They’re difficult decisions – deciding where and how you should save your hard earned money. There are plenty of options to choose from, each with varying degrees of risk.Many people have been cheated out of thousands of Rands worth of savings by false promises and get rich quick schemes. The reality is that these kind of false leads only end up in massive wealth loss and heartache. If you’re just starting to save, then be wise. Start by putting your money into safe investments, such as those offered by banks. Once the saving habits are set and the foundations have been laid, then you can start branching out and looking at other investments.
Before you get down to the business of saving, it’s important that you answer two simple personal questions.
Do you have any debt?
If the answer is ‘yes’, then it’s probably best that you get rid of it before starting to save. The interest on your debt will be much higher than the interest earned on any savings. So the faster you pay off your debts, the better. This doesn’t necessarily apply to mortgage or credit card debt as banks will penalise you harshly for trying to pay off debt earlier. Talk about bizarre. But that clothing account that you’ve been putting off. It’s time to confront your inner diva and get it out the way.
Do you want to save or invest?
It’s important to differentiate between saving and investing as a starting point. Saving is putting your money where it’s completely safe. You’ll get it all back plus a little interest. Investing is putting your money somewhere where you risk losing it in exchange for the chance that it’ll grow quicker.
It’s not a matter of right or wrong. It depends on your circumstances. In the long run, investing usually outperforms savings, because of that nasty thing called inflation. Unfortunately, investing comes with a bit of a risk. Make a wrong decision or even the right decision at the wrong time and you could find yourself with less than you started with.
When people think investing, they tend to think about stock markets. While that’s partially true, there are other things one can invest in. Property, a decent wine, antiques or even your own business all stand as types of investment. They involve putting your money in a place in the hope that it will appreciate at the risk that it won’t. But if risk is a luxury that you can’t afford, then saving is probably a better option. There are many financial planning tools and techniques, but there are also several tricks that might help you save a bit extra.
Bonds aren’t just secret agents
A bond is a low-risk investment which is issued by a third party to fund projects. Think of it like an I.O.U. When you purchase a bond, you are lending money to one of these parties (known as the issuer). In exchange for the “loan”, the bond issuer pays interest for the life of the bond, and returns the face value of the bond at maturity. And they’re only issued for a set period of time.
There are a variety of bond types, each of which hold a different degree of risk and you might be penalised for early withdrawal. But mostly, they’re just that, low-risk investments with marginal gains.
Credit cards aren’t from the devil
A credit card can be your best friend if you know how to use it. That’s a big if. Of course banks make ridiculous amounts of money from the interest of credit card users who don’t pay their balances immediately. But that doesn’t mean you have to be one of them.
If you manage your card repayments properly, you can effectively roll your spend over for payment up to two months later. You can then leverage this by investing the money that you would’ve had to spend on it, in short-term loans. Voila, you’re earning interest on the bank’s money.
Medical aid or hospital plan
A medical savings account is simply a way for a medical aid company to force you to save for day-to-day medical expenses that the company doesn’t provide for. In most cases, there isn’t much difference between a hospital plan and a basic medical aid savings plan. The additional amount is thrown into a ‘savings account’ until you need it.
If a hospital plan, for example, sets you back R1000 each month and a medical savings plan costs R1500, your savings will be R500 each month. This R6000 is depleted through the year as you use it. If you don’t use it, they’ll eventually just pay your money back to you. And you pay next to no interest on the balance.
So, if you’re a relatively healthy person, a medical savings plan might be a unique opportunity to save money, without even thinking about it.
Saving money doesn’t have to be a difficult task. Once you get into the habit of things, it’s actually quite easy. And, with a little help of the ‘system’ you can save a great deal over a relatively short period of time. These tricks will help you set money aside on a regular basis and you’ll be reaching your savings goal before you know it. A summer beach holiday every year sounds about right.