An age old question with no definite answer, it seems. Let us begin by answering this question in the same way in which one allegedly eats an elephant – Bit by bit.

 

1) What are you saving for?

This could range from a nice pair of shoes to retirement to an emergency fund for a rainy day. It is important to know what exactly it is that you are saving for. As with most things in life, when we have a goal or objective to work towards we are more aspired to do it rather than just aimlessly plodding along. The goal of your saving also informs the time horizon over which you will be saving. Some examples of savings goals are:

  • An Emergency Fund to ensure that you can withstand life’s curve-balls
  • A House Deposit
  • An overseas holiday
  • Retirement
  • Your child’s Tertiary Education

 

2) Define your time horizon

Once you have the goal defined, spend some time on how long you would like to save for this specific goal. Obviously we all would like to only save 1 week and be ready for retirement. Unless you are Wayne Rooney (who by the way earns R5.5m a week. Yes, a WEEK!), you would need to save for quite some time longer. To make life a little easier, split your goals into time horizons:

  • Short Term – Less than two years
  • Medium Term – Less than 10 years
  • Long Term – More than 10 years

 

3) Define your savings ability

Step 1 here would be to turn your Rands that you want to save into Percentages. How do you do that? Start by looking at your budget. Your Salary represents 100%, and the Rands that you would like to save gets expressed as a percentage of your total salary.

We would encourage you to aim for saving 20% of your total salary in a month. The hardest part is saying goodbye to that 20% before you have even seen it. It does become easier over time as your budget adjusts around it, and you get to a point where you even forget about it!

 

4) The tricky part

The last bit to chew off the elephant is where you consult a professional financial adviser, and work on a plan to achieve your financial goals. Here you will decide on a mix of products and underlying investments to best achieve each goal. These should be reviewed periodically with your adviser. How else would you know if you are on track?

 

Once you are done with this exercise, you might need to go back and readjust some of the goals and time horizons to fit with the plan. Who knows, you might even be able to reach your financial goals earlier than you thought?

 

We encourage you to get in touch to chat about your financial goals and to see how we could help you reach them.

Please note that no elephants were hurt during the writing of this blog.