Saving for a rainy day: The less we have the more we need to save

ToBeConfirmed

ToBeConfirmed

Published Jul 20, 2021

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By Abulela Gazi

FOR many of us grappling with too much month left at the end of our salary, being told that we should be saving might very well cause us to roll our eyes, throw our hands up in the air and ask: “How?“

It’s not that we don’t know how to work with the money we have. We probably know better than anyone how to budget and stretch that last rand in order to put food on our family’s table. Putting money away for a financial crisis, special occasion or our child’s education is something we know we need to get to someday, just not right now.

However, while it is understandable that when times are difficult, we might not prioritise saving, these are the times when it is most important.

Consistently putting aside a little every month, come rain or shine, gives your money a chance to work for you. It will not only mean that you have a little extra padding to protect you should an emergency arise, it will also give you a better chance of reaching your future financial goals, allowing you to build a legacy for your family.

Gazi shares why he believes it is so important to save for that RAIN-y day.

R is for Recession

It is a sad fact of life that those who have the least are always the hardest hit by a recession. This is for two reasons; first, low-income families have the tightest budgets, and second, they are more likely to lose their income during an economic crisis. Research from the 2007/2008 global financial crisis revealed that those considered low-income earners lost far more than high-income earners – a relative loss of income 2.5 times more than those who were categorised as better off.

While we might argue that we don’t have the money available to save, as we enter a recession in the wake of the Covid-19 pandemic, now is exactly when we need to start saving.

A is for Access

Having access to funds will not only give you a buffer in emergencies, it also means that you are better prepared for life’s more favourable events, such as a wedding or a pregnancy.

While the idea is to avoid dipping into your funds unless absolutely necessary, you also need a degree of flexibility that allows you to access your money when needed, without excessive penalty fees.

I is for Inflation – and Interest!

The reality is that for many of us, our earnings do not keep up with the rate of inflation – the general rise in the level of prices throughout the economy, over time. However, putting money away consistently will see you start to beat this curve, as you benefit from the interest you earn on your money.

The real savings superhero is compound interest. This is where the interest you earn on the original amount invested earns interest.

To benefit from the effect of compound interest, look for a savings plan that offers low fees and good potential for future growth, and leave your money alone for as long as possible, to give it the necessary runway to grow.

N is for Nest egg

We all want our children to have the best in life. To be able to give them this, we need to ensure that we have a nest egg for when the time comes for them to leave our homes. Through putting a little away every month, from the time they are in nappies until the time that they finish matric, we can help give them the best possible education, which will help set them up for a brighter future.

Abulela Gazi, head of Client and Business Solutions at Metropolitan

PERSONAL FINANCE

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