A recent Old Mutual Savings Monitor survey, which interviewed 1 000 people across all income groups, showed that wealthier people spent more and saved less than middle- to lower-income people. It also showed, remarkably, that the level of savings was exactly the same between people with debt and people with no debt. The people with no debt simply spent more, they didn’t save.
Those people who said that they planned on saving more this year had one thing in common — they had a financial plan.
This research confirmed anecdotal evidence from a conversation I had with a friend recently. She has very little debt, she has a company pension fund and adds a small amount to a retirement annuity each month. Being in her mid-40s she started to wonder if she has enough put away for retirement.
She thought she was doing OK until she sat down and did the sums — the results were not comforting. Because she had cashed in her previous pension, she started saving very late for her retirement and the reality is that she needs to significantly increase her savings.
She admitted that she could very easily save more each month and that she often just spends on frivolous items; she just didn’t know she needed to save more. She thought having a pension fund and a retirement annuity was enough. She had never sat down to do a proper financial plan.
The good news is that she has the money to save and she still has 20 years before she is to retire, so she is not in dire straits. However, if she had not taken the time to sit down now and assess her situation, in 10 years’ time her outlook would have been very different.
What the research also suggested was that having a home loan may be an effective way to save. Using money to rather service debt on a house that is a long-term growth asset is preferable to wasting the money on frivolous spending.
But bottom line is that without a financial plan you will never be saving enough.
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