Johannesburg – A recent survey by accounting firm Deloitte has painted a dire picture of the financial wellbeing of South African households.
The study revealed that 70% of South Africans were spending all their income every month. To create a long-term mindset, it is vital to showcase the impact of diligently saving a small amount each month, said André Wentzel, head of client solutions for recurring savings at Sanlam Retail Affluent.
Making small savings can ultimately lessen the burden on your wallet. For example, for some people, saving R200 may seem too small to make a dent in their home loan or retirement savings, so they end up spending it instead.
Wentzel has a different view.
A saving of R200 can seem like such an inconsequential sum that many 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,” he said.
To drive his point home, Wentzel decided to do the maths.
Here is what would happen if a person invested the extra R200:
• Towards your retirement: This will accumulate to between R450 000 and R600 000 in 30 years, depending on what you assume the investment return to be. For example, an 8% return will yield R479 000, and a 9% return will yield R563 000, after investment costs. This also assumes that you increase the R200 per month in line with inflation (at 5%) each year.
• Towards your home loan: On a R700 000 home loan, assuming an interest rate of prime (7%), the monthly instalment for a 20-year loan will be R5 307 per month. When contributing an extra R200 each month, the loan will be paid off in around 18-and-ahalf years instead of 20, and you will save approximately R50 000 in interest over this period.
• Paying off your credit debt: Paying off a credit debt of R15 000 over three years works out to a repayment of R525 per month (at an interest rate of 18% per annum). An extra R200 per month means you can pay it off a year earlier, saving approximately R1 400 in interest.
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