In Chapter 9, I discussed one of the traditional reasons for savings which remains relevant today. To earn interest and grow your savings while you wait to invest in whatever you are saving for. I however noted that interest is only receivable on savings accounts. Except in special circumstances, demand deposits do not earn interest simply because the bank is not sure when the saver is likely to come to withdraw their funds. This is because the bank needs to earn interest through lending the same money to be able to pay the depositor interest. This is why the longer the saving the higher the interest the saver is likely to receive from his/her bank. We also noted that it is only when there are savings that a bank can lend sustainably.
In life there are many things that we will not be able to pay for in one go from our monthly salary. This is because the value is sometimes too high requiring us to put money aside over a period of time to be able to afford them. Common examples are; buying/building your house, buying a car, investing in a business and many other investments. Luckily, banks have come up with products such as mortgages, vehicle finance schemes, equity releases and many other products to enable the average person to afford these large cash outlays.
However, in our context, one needs to save, sometimes over a long period of time, to become eligible for most of these products. As indicated in Chapter 8 one needs to show commitment by investing their own funds as down payment. For a mortgage, the deposit required is normally in the region of between 10% and 30% of the value of the investment to be made. The higher the deposit, the lower the amount to be borrowed and naturally the lower the instalments.
I recall many years ago, approximately 2 years after I started working, I decided to buy a car. I did not have all the money to pay for the car, but I had religiously saved 10% of my salary towards the required deposit for the car. It was painful at first but once I got into the stride it became easier, especially when I was awarded subsequent salary increases. I was delighted when I realised that I had saved enough money to pay for the deposit for my dream car. The car salesman thought I was one of his best customers as I had saved much more than the minimum required for the car. The amount I needed to service my lease was very affordable and became insignificant with each salary increase until I paid off. By that time, I had started to save for a house, which in another two years, I had raised a deposit for. At the time, my bank had a special high yielding savings product called Paid Up Permanent Shares (PUPS) which I leveraged on to save and earn interest.
In Chapter 3, I spoke about the need to save for our children’s education. University Education is one such large cost a wise parent or guardian will need to save for if they want to avoid the embarrassment of letting down their young ones. Granted, it takes time and requires discipline but the satisfaction of knowing that you managed to do what one should do as part of good parenting and sustaining future generations is invaluable.
Saving for big expenditures in the future requires time and patience. It is bearable if started early as one can afford to put aside smaller amounts over a long period of time than saving when there is no longer time. This is why you must talk to your banker or financial consultant today and learn how you can save to fulfil your big dreams!
Author: Ralph Watungwa
BAZ President
ENDS