Disciplined savers don’t have cheat days

Understanding the habits of highly successful savers is a critical starting point, which goes a long way towards addressing the pitfalls of saving for the future. According to Statistics South Africa (StatsSA), South Africa’s savings rate stood at 1.15% at the end of 2023 - far behind those of similar economies such as Brazil, South Korea and India, that all had positive, double-digit household savings rates.

The antithesis of disciplined savings is spending on credit

South Africa has a highly sophisticated banking environment, and it is increasingly easy to obtain financing transparently. However, all credit detracts from future savings (regardless of whether it is considered good or bad credit). Being able to balance taking on debt with manageable savings starts with working within one’s needs (including dependants’ financial reliance) and by having a good budget and sticking to it.

Have a three-day rule for unbudgeted purchases

Ensure you give yourself time to think about whether any large purchases you make will enhance or diminish the outcomes of your financial plans. Engaging with your financial planner before renovating your home, upgrading your car, or planning for a holiday can help you to understand the impact these decisions may have on your savings strategy. When people shy away from carefully considering the consequences of large purchases, it is often because they intuitively understand they will have a detrimental effect. Understanding the impact of these purchases –and planning for them where possible – will have a positive effect on saving.

Investing versus trading

No investor can forecast whether the market will be positive or negative on a day-to-day basis, but we do know that time in the market is the best strategy – the longer the time spent in the market, the lower the average volatility, and the better the expected outcomes. For savers like younger people, who don’t require income from their savings in the short term, being invested through market cycles will generally yield the best income. Studies consistently demonstrate that investors who try to time the market end up worse off than when staying continuously invested. The latest Dalbar study has highlighted how investors are not deriving the benefits of the increase in information, transparency and accessibility produced by unit trust funds. The behaviour gap in their latest study has skyrocketed to over 5% per annum – it is no wonder the average investor doesn’t experience the benefits of beating inflation.

From keeping up with the Joneses to encouraging a culture of savings

It is difficult to become a successful investor when the average consumer around you is spending on the best-perceived lifestyle today through credit and other unsustainable habits instead of embracing a positive savings culture. Encouraging financial planning, including saving for families, is a focus for PSG Wealth. One of our key initiatives is to support family members of all ages in embracing a positive and cost-effective way to save for future goals.

Achieve the tipping point of compound interest benefits

Warren Buffet, considered to be one of the most successful investors of all time, accumulated only 10% of his current wealth in his first 50 years of investing. Over 90% came subsequently, in large part due to the cumulative effect of compound interest. Fortunately, all investors – not only Warren Buffet – can benefit from this.

The graphic below is an example of a $1 000 monthly investment with an annualised return of 10%. In this illustration, almost 64% of the total wealth accumulated was achieved in the last 10 years of the 45-year period, a powerful demonstration of the value of compound interest.

The power of compound interest

Source: Rene Sellmann

Disciplined saving remains key

We don’t know what the risks and opportunities will be in the future, but every generation finds that becoming a disciplined saver and investor is critical to living well. While there is lots of noise and temptation for spending today, it comes at the expense of good financial planning for the future. Reach out to a financial planner to guide you towards achieving your family’s financial planning goals.