Plan for life’s unexpected eventualities through creative savings solutions

July is National Savings Month, a period to reflect on our budgeting habits and, more importantly, to allocate savings for unforeseen circumstances or future aspirations, even during challenging economic times, writes Hollard’s Group Head of Private Equity and Mergers and Acquisitions, Graeme Young.

25 July 2023: Alarming statistics show that South Africans still struggle to save. According to Deloitte South Africa’s Investment Management Outlook for 2023, the country’s savings rate stands at a mere 0.5%. The report cites various reasons contributing to this statistic; ranging from the harsh realities of South Africa’s constrained economy, where essential expenses such as housing, education, healthcare, and transportation costs continue to rise, to the burden of high levels of debt. In addition, factors such as low wages, limited financial education, and a lack of awareness regarding the significance of saving and long-term financial planning continue to contribute to the prevailing situation.

The Deloitte report compared South Africa’s savings rate to that of other countries, including emerging market peers Brazil and India, as well as more developed economies such as the US, the EU, and South Korea. The US has a rate of 12.4%, the EU 11%, and South Korea 13.7%. Notably, even South Africa’s emerging market counterparts, Brazil and India, have higher savings rates of 16.9% and 10.8% respectively.

Providing a safety net

Saving remains essential as it provides a financial safety net and instils a sense of security in the face of unforeseen emergencies or unexpected expenses. It enables individuals and families to have easily accessible funds to cover crucial needs such as medical expenses, car repairs, or home maintenance.

By having savings, people can avoid falling into debt or relying on high-interest credit options during times of financial strain. Furthermore, saving promotes long-term financial stability. It also allows individuals to accumulate funds for significant life events, such as purchasing a home, starting a business, or funding education. Through regular contributions, even in small amounts, individuals can harness the power of compounding and watch their savings grow over time. Furthermore, saving provides the opportunity to create a better future, including better opportunities to retire comfortably and opportunities to leave a lasting legacy for future generations.

While the impact of saving cannot be overstated, it may be challenging to do so under economically challenging circumstances. In such instances, consumers may need to adjust and find innovative strategies to enable them to save, in order to safeguard their financial well-being.Top of Form

Insurance policies

Some South Africans, particularly those with limited financial literacy or access to traditional banking services, may rely less on formal savings accounts or investment products and instead choose informal savings methods or keep cash at home.

In certain communities, informal savings mechanisms such as stokvels or savings clubs are widespread. These informal groups allow individuals to pool their resources and save collectively, fostering a sense of community support and encouraging regular saving habits.

However, there are several insurance products that can assist South Africans in building their savings – enabling them to redirect savings from informal, and at times unsafe platforms to more formal and safer channels. Several insurance cover options can be explored to safeguard against unforeseen circumstances, and at an affordable cost.

Health insurance, for example, is one of the most crucial products that consumers can purchase to safeguard themselves from health-related risks as medical expenses can impose a significant financial burden on individuals and families. Having a health insurance policy can enable people to better manage healthcare costs and safeguard savings from unexpected medical bills.

Another example is life insurance, which can provide financial protection for your loved ones in the event of the passing of a breadwinner. Life insurance ensures that beneficiaries receive a lump sum or regular payments, which can help replace lost income and support their financial stability.

In the event of a disability or inability to work, disability insurance offers income replacement. It can help you to preserve savings by ensuring a continued stream of income to cover living expenses and other financial obligations.

Homeowners’ or renters’ insurance safeguards your property and belongings against damage or loss caused by unforeseen events such as fire, theft, or natural disasters. Having adequate property insurance coverage can prevent substantial financial setbacks.

Vehicle insurance protects against financial losses which can result from accidents, theft, or damage to your vehicle. It can help safeguard your savings from repair costs, liability claims, or legal expenses.

It’s important to also consider retirement savings options like retirement annuities or pension plans that offer tax advantages and long-term savings growth. These products can assist individuals in building a retirement nest egg and securing their financial future.

When selecting insurance policies, it is important to assess your needs, review coverage options, and consider affordability. Seek advice from insurance professionals to ensure you choose policies that provide sufficient protection without straining your budget.

During challenging economic times, it is imperative to compare prices on essential expenses such as insurance, utilities, or groceries. By diligently comparing prices and exploring cost-saving options, individuals can make informed decisions that can help them save money. At times, this may require you to switch from your current insurance policy to a more affordable insurance policy or actively negotiate better rates with service providers. Such proactive measures can significantly contribute to managing finances effectively and weathering tough economic situations, and in turn, improve financial resilience.