1 October 2014
The experiment opened his eyes to the real value of money – and hopefully diverted him from a life of debt onto a path of saving and investing. But unlike the One Rand Man, most South Africans will never make the decision to change financial direction and move away from debt and instant gratification to savings and wealth building.
This is according to a new ‘Life Surprises’ survey by Sanlam which found that most of us reach our later years with deep regret about how we’ve managed our money. The survey asked 600 South Africans over the age of 50 to write a letter of advice to their 20-year-old selves. The overwhelming majority (69%) advised themselves to save more and start earlier.
Jan Steenkamp, Executive Head: Sanlam Segment Solutions, says the reasons for not saving have been well documented. “By and large South Africans have a consumption mindset. It is all about the ‘now’ and getting what we want immediately, even if this means falling into the debt trap. There is a lot of financial education on offer, but we are exposed to far more messages about spending and easy credit than we are about saving.”
Steenkamp says South Africans should consider putting themselves on a positive financial path early. “Starting to save young will ensure that your money grows exponentially through compound interest. This is the most effective way to build wealth over the long term. But it is also vital to remember that it is never too late. So if you haven’t started already, start saving today, whatever your age.”
Want to write yourself a highly congratulatory ‘dear 20-year-old me’ letter one day? Here are some tips.
“When people first start working they often over commit themselves from day one. They buy an expensive car and accept multiple credit card and store card offers. They plunge themselves head first into the debt trap, and often get stuck there for the rest of their lives. Drawing up a realistic budget and remember the golden rule of paying yourself first. Start by making saving one of your first ‘expenses’ and make it a first priority on your budget, not the last option.”
“One tip I’d give any youngsters starting out – drive a ‘skedonk’ for at least the first three years of your working life. Take the money you were so tempted to spend on a Golf GTI and save it so that you’ll be able to drive that fancy car later! You’ll get in the habit of saving early and you’ll start to get your money working for you from the outset,” said Steenkamp.
This should be at least one month’s salary, but ideally between three and six months of your salary. Your fund can be used to cover things like replacing tyres on your skedonk, medical bills not covered by medical aid or a burst geyser and should be topped up as soon as it is depleted.
Nothing can replace tapping into the expertise of a professional financial planner who has formally studied every aspect of personal finance and been through rigourous exams. They understand what is needed in the short, medium and long-term. “Word-of-mouth is very often the best way to find a great planner, ask around and you are bound to find someone who has an amazing planner that is registered and backed by a reputable financial institution. Taking this small step, as early in your life as possible, can make all the difference to your financial picture and help you prioritise the most appropriate savings plan for each lifestage,” says Steenkamp.
Paying rent helps someone else pay off their bond… So the sooner you can buy your own property the better. Save a deposit for your first home and aim to pay the property off as quickly as possible. Once you’ve got on top of your bond payments, you’ll have spare cash that can be in invested in other investment vehicles. This will allow you to get returns from a variety of sources, like the stock market, bonds or cash as well as property.
According to Sanlam’s BENCHMARK Survey, only around a third of South Africans (29%) will be able to maintain their lifestyle into retirement. “It may feel good to drive a Golf GTI in your 20s, but not so good to walk or take the bus in your 70s… So consult your financial advisor and start early, putting away as much as possible. Retirement products, like retirement annuities, pension funds and provident funds offer exceptional tax breaks and ensure you will have an income in retirement.”
Survey respondents were asked to write a note to their 20-year-old self, and this is what a few had to say: