Although banks and financial institutions have long held the idea that South Africans aren’t very savings-inclined, this isn’t necessarily true. From money jars filled with spare coins to the R44b collectively saved in around 820 000 stokvels across the country, South Africa has long had a thriving informal savings market.
This market exists largely because more formal savings products were either complex and intimidating or inaccessible to low-income households. Many people felt that they didn’t have enough money to make use of formal financial institutions, that it was too costly, or they simply didn’t have access to the financial infrastructure necessary to do so.
However, the globalisation and digitisation of financial services are changing this landscape, making it easier for anyone to put a little something away for a rainy day. Today, as we celebrate another World Savings Day (first established nearly 100 years ago as World Thrift Day), we have moved from hand-written records of savings filed by clerks who received physical bank notes from customers to digital transactions made with the click of a button on a mobile phone.
But, as saving becomes more accessible as a result of the advancements in technology, now is the time to look at how to shift South Africa’s savings culture to one that prioritises planning for the future. While saving helps you to tuck money away, the amount you save remains static. By investing that money instead, you’re better able to create and preserve wealth by making your money grow and work for you.
Saving can seem scary to those who lack experience. This is especially true as the cost of living rises and people have less disposable income. As such, you may think that you don’t have the means to save or invest any money as you’re only able to afford necessities, such as rent, electricity and groceries. But, as the financial services industry expands beyond traditional banking to include the emergence of more disruptive fintech, it’s more than possible to invest on a smaller scale. This is thanks to innovative saving and investment apps and digital tools that cater to lower-end financial groups.
Here are some simple investment tips to get you started:
1. Lay out your future goals
Before you jump into putting your money into shiny, new trending ideas that suddenly become popular, it’s important to first be clear about why you’re saving and what you’d like to achieve. Are you saving up to reach a specific goal, such as buying your own home or building a retirement fund, or are you setting cash aside simply to build wealth that you can dip into when you’re faced with sudden expenses?
2. Decide how much you’re willing to save
The next step is to take a realistic look at your finances and establish how much you are willing or able to save. Doing so will also help you to determine whether you need to be looking at short-term or long-term options.
3. Evaluate your risk appetite
Some investments carry more risk than others. That’s why it’s important to determine just how much risk you’re happy with taking. This will help to identify what investment options are available to you, within the margin of risk you’re willing to accept. This simple risk assessment can also help you when deciding if you want to make investments at your discretion (which carry higher risk), if you want to use digital platforms that help you determine which investments are best suited to you (which carry medium risk), or whether you’d like to employ a financial advisor (which carries lower risk, but at a higher cost as advisors will charge you a fee for their services and often require you to have a higher level of assets).
4. Find the right savings vehicle for you
Once you’ve determined what your objectives are, how much you can put away and how much risk you’re happy to take, you can select the option that best suits your needs.
There are several types of saving and investment vehicles available to you, such as stocks, bonds, cryptocurrency, and so much more. There are also emerging investment options available, such as micro-investments, which allow you to consistently put away small amounts of money over time. As a first-time investor, you can make use of resources such as this investment risk ladder to help you identify where each asset class sits, based on their relative risk and potential returns.
5. Don’t put all your eggs in one basket
As much as we’d all like to minimise risk, every investment carries at least some risk because of the volatile nature of the market. That’s why, if possible, you should put your money into several different investments, with different risks and returns.
If you’re not in a financial position to do so, you can help minimise your risk by stacking your investments. This means starting with lower-risk investments, which often carry lower yields of returns, and working your way up to higher risk/higher reward investments as you become more financially savvy.
*Justin Asher is the head of marketing & strategy at upnup, the first fintech platform in South Africa