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R150: 6 Cappuccinos or a Year Off Your Home Loan?

André Wentzel, 8 August 2018

If you have R150 in your bank account once all your fixed monthly expenses have been paid, would you typically spend or save this extra amount?

If you are like many South Africans, you’ll feel that R150 is just too little to make a dent in your home loan or retirement savings so you’ll end up spending it instead.

I beg to differ. “R150 can seem like such an inconsequential sum that people would rather use it for a few cappuccinos or to treat themselves to a takeaway dinner. But doing this means missing out on the opportunity to turn a relatively small amount into a larger long-term investment.”

“It really helps to be able to visualise short-term rewards versus long-term pay-backs to understand the effect of compound interest and how small sacrifices now can make a big difference later.”

To practically demonstrate this, I did the maths. Click here to see what would happen if a person decided to invest the extra R150 in his or her future rather than on instant gratification and to see what short-term sacrifices you would have to make.

Practical exercises like this make the longer-term gains more concrete, “The trick to switching people’s thinking from a short-term bias to a longer-term one is to better articulate long-term goals and find ways to make these seem attainable.”

People with longer-term mind-sets typically have more retirement savings and are often better at managing credit. Additionally, being clear on their goals means that they’re frequently more active in finding ways to save and avoid expense creep.


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