For some people, saving even a little something each month is a way of life. They are the kid that always had money to buy that bike, skateboard or paint set. For others it’s not so easy. When you have a family with constant needs for school fees, clothes, and unexpected expenses, saving anything starts to look like an impossibility. But if you look around many of the people you know who have similar incomes to yourself, indeed have savings they can use both for emergencies and for planned purchases, deposit on a house and holidays.
In South Africa our black population has employed sensible savings plans out of necessity. Previously denied access to the formal banking sector, they invented the Stokvel, the Funeral/Burial Society, and other means of saving. Stokvels and burial societies throughout the country were formed with the view of creating an alternative to banks or savings mediums.
In a survey done recently only 38% of the poor households surveyed, use formal, long-term savings instruments such as retirement annuities, while 67% belonged to at least one stokvel and burial society. The Stokvel system has traditionally worked on a honour system. Completely informal, a group of like-minded neighbours or friends get together and decide to start a stokvel. Essentially a savings club, the members agree on the rules and the income and pay-out system. Every week or month, the members make a small cash payment into the fund; all payments are recorded – usually written into a ledger – of who pays what. If you miss a payment you are trusted to make it up. Each member gets a turn at taking all the money paid in that month (or period) to spend how they wish. So the buying power for each individual is multiplied by the membership number – for example:
1. There are 12 members in the stokvel – each pays R100 per month
2. The total income monthly therefore is R1200
3. Each member gets the R1200 once every 12 months to spend on what they want
This is a very simple way of describing it, but stokvels exist to buy fridges, cars, houses and other life-changing items. In recent years banks have recognised the power of the stokvels and have special schemes to create even more wealth through interest-bearing accounts and investments.
Previously based on trust, and traditionally managed by women, stokvels are big business in South Africa with this sector of the market having an estimated value of R12 billion rand per annum
Burial or funeral societies are run along similar rules but normally over much longer periods of time and with smaller regular payments. Again the money is used as needed. Today, these saving schemes rely heavily on investments to create additional value.
It’s pretty easy to start a stokvel with a group of trusted friends or workers – as a community you meet, agree on the rules and start saving. A stop order on your bank account or with your employer takes the agreed amount before you even see it. But the basis of the concept is that of SAVING. And you can, of course, do the same on your own.
Working together with our budget tool once you know what’s left over each month, arrange for a bank stop order to move the amount you think you can afford into a savings account. If you need school fees, for instance, in January every year, take the amount needed and divide it by 12 and put that amount away each month.
It’s important to set your savings goals – know what it is you are saving for and make the money work for you by getting some financial advice from a certified and registered financial planner. (The Financial Planning Institute has a list)
Even if you have no real goal in mind at the moment, save what you can for emergencies. Even R50 per month soon adds up.
It’s often said that the savings mentality is something we grow up with. But you can decide to start thinking that way now, show your kids how, and enjoy the fruits of your hard work