The idea of saving is something we are all familiar with. However, the end goal of what we are saving towards can be vastly different. It could be something simple like saving for a new car or something more complex like saving towards your retirement. Whatever the goal is you are trying to achieve, it requires planning and discipline.
It is always best to define your savings goal. This in turn allows you the discipline to stick to the plan. Without a plan there will be no discipline and the likelihood of achieving your goal would come under pressure. Let’s look at an example including a car and answer a few simple questions:
- How much does the car cost and what deposit do you want to put down?
The car costs R 150 000 and I would like to put down a 20% deposit.
- When do you want to buy the car?
I want to buy the car in the next twelve months.
Given the answers to these two simple questions, we can lay out a plan and you can now start saving. You require R 30 000 (20% of R 150 000) within twelve months which means you need to save at least R 2 500 each month. While this sounds like a simple task, you will also need to look at your budget as well as the type of investment vehicle which best suits your savings goal. Regarding the investment vehicle in this example, your best choice would be a simple money market or savings account as you will be able to earn interest on your savings and have the comfort of knowing your capital is protected. These two topics are however not included in the scope of this article and we encourage you to read through them via the links to each.
On the other hand, when it comes to saving for retirement, it gets a little more complex as there are several factors and unknowns to consider. The reason for this is that the investment horizon increases from one year (when compared to the car deposit) to potentially twenty to thirty years and this time you are not simply buying a car, but you are rather “buying” your retirement income. This could seem like a daunting task at first, however with a proper plan in place, some discipline and a little help from a financial adviser, together we will be able to get you on the right track and work towards your retirement goals. Having a plan in place will, as with the car, help you to make better decisions when temptation looms.