-What can South Africans do to become better at saving and prepare for retirement.
According to an article by BusinessTech only about 20% of members who belong to a formal saving fund will have saved enough by the time they retire. This means that more than 80% of South African savers won’t have enough money to continue living at their current standards. A big contributing factor is the amount of South Africans that choose to “cash out” when leaving an employer. This means that they do not end up saving the money for retirement. Decisions like these are believed to be an after-effect of the lack of financial education of the average South African. But how can the average South African plan better?
The most important factor is setting a savings goal tailored to what you want to achieve for retirement, and sticking to it. While the specific goal of every individual might differ, the end destination is the same: to be financially prepared for retirement.
The following guidelines by Fin24 can be followed to help allocate your after-tax income;
- At least 15% of your after-tax income should be allocated to retirement savings.
- About 50% should be allocated to necessities like food, housing and utilities.
- Allocate less than 25% to luxuries.
- About 10% can be allocated to holiday savings, back up reserves etc.
Here are some practical tips to help you save better;
- You can start by saving small amounts initially and increase the amount as you become more able to invest bigger sums.
- Make sure to keep inflation in mind and adapt your saving amounts accordingly.
- Although it might be difficult initially, it is important to keep track of your spending. This will help you to adjust your budget from month to month and even help you realise if you have any hidden expenses.
- With every salary increase and added income, increase your savings amount before you start increasing your living standards.
- As mentioned above, don’t fall into the trap of opting for the ‘cash out’ when you change employers. It might seem tempting, but you’ll only add to your difficulties in future.
When it comes to retirement savings, the gap between expectations and reality is evident across all age groups in South Africa. Make sure you are educated when it comes to your own personal finance and save with your future self in mind. Another point where Enslins Auditors can help you focus on is tax planning. Find out more here.