How can I save on my income?

Saving on a small income is possible. By following a few rules you should find that a small amount is available to be put aside at the end of every month.

  • Buy necessities first and luxuries last.
  • Take advantage of benefits available e.g. scholarships, legal aid, etc.
  • Budget carefully and plan in advance.
  • Get the best quality for the lowest price.
  • Try to get what is needed without spending money or spend only for raw materials.
  • Make informed decisions on large purchases.
  • Shop around and make comparisons of costs and rates.
  • Negotiate prices and ask for discounts – always possible when paying cash.

How do my savings benefit the economy?

Saving for your retirement and other future needs will leave you better off. As well as being good for you personally, your savings also benefit the economy – particularly if you invest your savings productively. Creating prosperity and jobs requires investment. Every factory, shopping mall or engineering project requires investment capital to convert it from an idea into reality. The more South Africans save, the greater the pool of investment capital we create. The more investment capital available, the more potential there is for the economy to grow by creating jobs, for example.

What does the bank do with my money and why do they charge a fee?

After accepting a deposit the bank provides loans to the value of deposits received. They charge the borrowers interest, which belongs to both you and the bank. But today banks also provide a wide range of services to clients. The administration of bank accounts is expensive. Banks charge fees to handle these administration costs. Banks also provide a safe place for your funds, and pay you interest. The service is usually worth the small fee charged, but you should always compare bank fees to ensure that you are paying competitive rates at your bank. If not, you should change banks. Also, at all times you are a customer of your bank and you should feel comfortable about approaching your financial establishment for any explanation about fees and administration.

How are interest rates calculated?

Interest is the amount of money the bank pays into your account for depositing your money with them. The interest payments are calculated as a percentage of funds in the account. This percentage is called the interest rate.

For example: You deposit R100 into a bank account. The bank promises to pay you 10c a year on every rand invested. The interest paid to you is therefore 10c times R100 invested, equalling R10. The interest rate can be determined by dividing the interest paid by the amount of money deposited. R10/R100 = 0.1 or a 10% interest rate.

Are there different ways of saving?

There are a number of ways to save money to cover your future needs. These methods include:

  • Joining your employer’s pension or provident fund.
  • Putting your money in a bank account.
  • Purchasing investments like unit trusts.
  • Joining a reputable savings club or stokvel.
  • Taking out insurance to cover any losses both to yourself and your possessions.

Is it not better to buy now and save on increased costs later?

When you save, your returns from your savings are almost always higher than inflation. This means that by buying now you are sacrificing the returns you could have earned above inflation. By buying now you avoid the negative effects of inflation, but also avoid the even larger gains you could get from saving. This includes the benefit of compound interest i.e. saving earlier and earning interest on the interest already earned.

Can buying on credit help me?

Buying on credit helps the banks and the retailers, but it does not help you. When you save or invest, interest works on your behalf. You get paid interest on your savings. However, accepting credit makes interest work against you because you are paying the interest to somebody else. Buying on credit also means that you could be living beyond your means. Should you be forced into a credit situation, it is to your advantage to get out of the situation at the earliest opportunity.

Who created money?

Money replaced barter as a means of exchanging goods and services thousands of years ago. Cattle, grain and cowrie shells were used as the first form of money, replacing the old way of doing things. Bartering did not work because the two people who wanted to sell to each other had to have exactly what the other wanted. Coins, as we know them, were first used in Asia Minor (modern Turkey) about 3000 years ago. Paper money was first used in China about a thousand years ago. Today money is created by the central bank of the country in question.

Explain inflation

Inflation is an ongoing general rise in prices across the economy. It is different from the rise in price of a particular item or service. The inflation rate is a measure of the change in price of a representative basket of goods over a specified period, most commonly 12 months. The rate of inflation over a particular year will depend on movements in the prices of the goods that make up the basket.

If saving is so important, why is it taxed?

Tax is not levied on savings as a whole. Instead tax is paid on the interest earned as a result of your savings or investments. Interest is a form of income, and income tax is an internationally accepted way for the government to raise funds for healthcare, education, etc. By paying tax we help ensure that the broader environment in which we live is sustainable. Dividends from SA companies are not taxed at present, and this should be considered when choosing an investment. Do not ignore a good investment just to avoid tax.

How does the government save?

The government saves by spending less money in a year than it receives from taxes. It saves the government the cost of borrowing money and falls into the pool of funds that can boost investment and prosperity.

What are stokvels?

Stokvels are community savings clubs. They sometimes also play the role of social clubs and burial clubs. Stokvels also create savings for members through their increased buying and bargaining power. Government has realized that it has to support and encourage informal community-based savings. Consequently legislation has been introduced that deals specifically with stokvels.

Most stokvels work as rotating savings clubs. Members contribute a specified monthly sum to the club, with each of them getting to keep all the contributions when their turn in the rotation arrives. Some stokvels work as funeral clubs and only pay out a specified amount, on the death of a registered beneficiary. They are a good tool for saving, and provide an exciting social environment as well.

How can teenagers save?

Many banks have specialized accounts for teenagers with above-average interest rates. Teenagers are at a stage of their life when responsibilities are few. It is easier for them to put a bit of money aside every month to save for those things they really want. By learning to budget early (good training for later life) teenagers will be surprised how much money they can save every month.

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