The earlier you start saving, the better

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A savings culture needs to be cultivated from as early as your twenties in order to benefit in retirement or in the long term.

“We always advocate that you actually need to start this pretty early. It’s one of those habits that people don’t cultivate. Earlier on in one’s life it’s pretty difficult to save, you’re balancing so many acts, but it’s still a fundamental aspect that we need to actually stress in our communities. It’s absolutely critical,” Standard Bank head of financial consulting Angela Mhlanga told CNBC Africa on Wednesday.

According to the South African Reserve Bank, savings in the South African economy amounted to 14 per cent of GDP in the first quarter of 2013.

Because of a highly consumer-driven society, many feel the need to spend their pension or savings on property or assets, instead of allowing it to grow for the longer term.

There is however a savings culture among people with low salaries through stokvels and certain community savings schemes.

“We’re always chasing the next best thing when actually, at the best of times, it’s about balance. It’s understanding that you’ve got to sometimes reward yourself for the good things, but at the same time there’s important savings that you’ve got to make towards your retirement, towards eventualities that will come in one’s life,” Mhlanga explained.

According to Standard Bank, if one invests 150 rand from 25 years old, 40 years later, at the age of 65, you would have roughly a million rand through compound interest. If you invest the same amount but from 60 years old, you would have around  12,600 rand through compound interest by the age of 65 years old.

 “In your twenties, you’re preoccupation is on several things. You know you need to save. You need to save for a car or a deposit for a home. It’s very important at that establishment phase, where you have needs. In your thirties, realistically you should have a firm discipline around saving,” said Mhlanga.

Saving in your forties can be towards paying off a home loan, school fees and child expenses, setting up a retirement plan, saving for medical aid in retirement and for adequate income insurance.

Retirement annuities are also another method of saving from a tax-saving perspective, as well as saving one’s pension in a preservation fund when moving jobs.

“The fundamental issue there is that you actually could come out of retirement and not have sufficient funds. So it’s absolutely key that people review where they sit from a retirement perspective to make sure that they’re still relevant,” she said.