July marks Savings Month in South Africa, an important time to focus on improving your financial habits. While the idea of saving money might seem overwhelming, especially when thinking about long-term goals such as buying a house, sending your children to school, or retiring comfortably, Savings Month serves as the perfect reminder to get started.
Building long-term wealth doesn’t happen overnight. As Thomas Berry, Head of Sales at PSG Wealth, puts it, “Just like constructing a house, financial success is a steady process of laying down one brick at a time.” He emphasises that every contribution you make towards retirement, savings, or investments is like laying another brick, gradually building the foundation for a secure financial future.
This article breaks down how you can build your financial house brick by brick during Savings Month with a strong plan, the right tools, and expert advice.
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1. Start with a Solid Plan: Laying the Foundation
When you build a house, you start with a detailed blueprint. Similarly, to achieve financial success, you need a clear plan. According to Berry, the first step in saving is to define your goals. Whether it’s saving for a home, education, retirement, or a holiday, knowing what you want to save for makes it easier to stay on track.
Berry advises, “Start by defining what you want to save for. This clarity gives your savings purpose, making it easier to stay motivated.”
Once your goals are defined, break them down into short-term, medium-term, and long-term objectives. This way, you’ll have a clear roadmap with timelines and target amounts. Just like an architect follows blueprints for a house, your financial plan provides the structure for your savings.
2. Pay Yourself First: Build the Habit of Saving
The key to building your financial house is paying yourself first. This means setting aside a portion of your income for savings before spending on anything else. The earlier you prioritise saving, the quicker you’ll start seeing progress.
Berry recommends automating your savings by setting up debit orders. “Automating your monthly contributions ensures that you pay yourself first. Just like laying bricks one after another, regular savings build the foundation for your financial freedom.”
By making saving a habit, you make sure that your future financial well-being is your first priority, just like any other important task in your life.
3. Choose the Right Investment Products: Building with the Right Materials
When constructing a home, choosing the right materials is crucial. In the same way, selecting the right investment products is essential for building long-term wealth. Some of the most common investment vehicles in South Africa include:
- Retirement Annuities (RAs): These offer tax-deductible contributions up to 27.5% of your taxable income, with an annual cap of R350,000. You can only access the funds once you turn 55 or in case of ill health or emigration. More details are available from SARS.
- Tax-Free Savings Accounts (TFSAs): With TFSAs, you can contribute up to R36,000 per year and a lifetime cap of R500,000. The growth, interest, and dividends are all tax-free, which helps you build wealth faster. However, exceeding the contribution limits results in a 40% penalty tax. Read more about it on National Treasury.
- Voluntary Investments: These flexible portfolios allow you to invest at your own pace. You can access the funds at any time, but you’ll need to pay tax on income, dividends, and capital gains. Voluntary investments offer flexibility, making them an ideal choice for those who want easy access to their money. Learn more at Investopedia.
By using a mix of these investment products, you can ensure your savings are growing steadily. Just as a builder chooses the right materials for a house, selecting the right financial tools will strengthen your savings plan.
4. Build with Expert Guidance: Use the Right Tools
No one would attempt to build a house without professional help. Similarly, managing your finances and investments requires expert guidance. That’s why working with a financial advisor or portfolio manager can be a game-changer.
Berry explains, “Just like you wouldn’t try to build your house without an architect or a contractor, you shouldn’t build your financial house without a professional guide. Investment managers can help you make informed decisions, ensuring your financial house is built on a solid foundation.”
One of the most efficient ways to manage your investments is through Collective Investment Schemes. These schemes pool together funds from different investors, giving you access to a professionally managed, diversified portfolio. For more information on these, visit ASISA.
5. Consistency: Building Brick by Brick
The most important part of building wealth is consistency. Berry stresses, “Even if progress seems slow, every contribution counts. Small, regular savings add up over time, and compound growth ensures that your investments grow exponentially.”
Think of it like laying bricks: at first, it may seem like a slow process, but over time, those small contributions add up to something much bigger. The key to successful saving is making regular, consistent contributions to your financial plan.
6. Trust the Professionals: Build a Solid Financial Team
As you would hire experts to design and build your home, it’s essential to trust professionals to manage your investments. By working with a skilled financial advisor, you’ll be able to design a savings plan tailored to your needs.
Berry suggests working with a financial professional to ensure you’re using the right tools to build a financial portfolio that reflects your goals, risk tolerance, and time horizon. The right team can help you navigate market changes and adjust your strategy as needed.
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Savings Month: Start Building Your Financial Future
Savings Month is the ideal time to start working on your financial future. By setting clear goals, automating your savings, selecting the right investment vehicles, and seeking expert advice, you can start building the foundation for long-term wealth.
Remember, just like constructing a house, financial success is a process that takes time. Every small step you take today, whether it’s setting up an investment or making your first contribution, brings you closer to your ultimate goals. With careful planning, dedication, and consistency, you’ll be well on your way to building a secure financial future.
For more information on starting your savings journey, check out PSG Wealth, SARS, and National Treasury.