South Africa has some of the lowest savings rates in the world and with many South Africans following the payday millionaire approach, this ultimately results in them only ending up in an ever greater financial predicament.
The month of July is known as Savings Month and should serve as a reminder that there is no better time than now to scrutinize your financial affairs, says Thys van Zyl, head of Everest Wealth.
"Consumers are reeling after ten consecutive interest rate hikes and sharp increases in food prices, fuel prices, power prices and other living costs. This results in many people not even thinking about saving as they are just trying to keep their heads above water. However, it is essential to make a mind shift and get into the habit of saving."
The first step is to examine the state of your own financial affairs in order to clearly establish how things need to change and how you are going to do it so that you can set goals and measure their progress.
"This investigation into your financial affairs will help you determine, among other things, whether you also follow the payday millionaire approach where in the days after you receive your salary you spend your money freely on all kinds of luxuries and then struggle to make ends meet until the next payday, and possibly incur further debt and therefore only end up in a bigger financial predicament every month."
It is more important than ever that consumers budget properly to make sure they can keep up with price increases and to see where they can cut back. "Every extra cent must be used to pay off debt and to try to save to have an emergency fund in place. It is important for consumers to adopt behaviours that can help them save. This includes, among other things, making bulk purchases, focusing on promotions, making use of loyalty programs, saving on transport and electricity costs where possible and cutting out luxuries by adjusting their lifestyle. There is also the possibility of doing a second or additional job in order to supplement your income and thus be able to save."
Consumers should guard against incurring unnecessary further debt, using credit cards recklessly, and living beyond their means and should think twice about every rand spent.
"Those who are lucky enough to receive a tax refund or a bonus should try to pay off at least a portion of debt, save a portion of it, and keep a portion of it out for an emergency fund. Consumers need to think long-term as they attempt to weather financial storms.”
This includes, among other things, being smart with taxes and with investments in order to also provide for retirement and leave a financial legacy behind.
"This involves starting to build your financial legacy early by setting clear goals, including developing an investment strategy, protecting your assets, saving enough for retirement and doing estate planning, and having a will in place."
Statistics indicate that only about 6% of South Africans will one day be able to retire comfortably while the rest will depend on their children, the state or other possible sources of income. Recent polls and research have once again confirmed that the so-called sandwich generation (people who not only support children, but also parents and other older dependents) is increasing every year, and underlines the importance of starting to make provisions for retirement at an early stage.
"A generation that in effect has to provide for two financially dependent generations can easily result in them not making enough provision for their own retirement due to the financial pressure to support their children and parents. However, this vicious cycle can be broken by planning for retirement early on and being smart with investments for retirement."
It is essential to have a clear scope of your financial situation. "This includes all your debts and savings as well as all the spare vehicles you already have in place for retirement. Determine whether you contribute to a pension fund, provident fund or retirement annuity or more than one.
"The next step is to determine with the help of a financial planner how much you will need for retirement as people often underestimate how much they need to retire with. This is determined by taking into account your personal circumstances, the age at which you plan to retire, and the lifestyle you will want to maintain in retirement. It is also important to know what amounts will be immediately available to you upon retirement, what monthly income you will get, and what tax implications there are."
Financial advisors can help people with different options in order to prioritise savings and draw up a comprehensive financial plan to achieve it.
PERSONAL FINANCE