Your Financial Update #6
As inflation increases, hard times definitely lie ahead for most Namibians. However, don’t despair as this is the time when you should think about investing your hard earned money in order to endure these challenging times.
Through this question and answer format, Standard Bank stresses the importance of building up an investment to withstand the hard times and get into the habit of saving now rather than later.
Q1. Why do you think it is important for Namibians to get into the habit of saving on a regular basis?
A1. Savings should be regarded as a necessity and not as a luxury. We are living in hard economic times where the cost of living has become very expensive. So a bit savings on the side will carry you a long way through those tough times. In essence, savings is a valuable habit to carry you through the turbulent times. Saving is therefore very important, for many reasons. You may need to buy groceries, pay outstanding school fees, make provision for the unexpected, or you might just like to know that you have something to fall back on in the event of an emergency.
Q2. Most people use the words savings and investment interchangeably. Can you explain what the difference is between these two?
A2. The difference between saving and investing is an important one. Saving represents money that is supposed to be immediately liquid and safe. Investing is for money that is supposed to be generating more money. Knowing the difference can help lower risk.
Q3. It is reported that March 2016 witnessed the highest annual and monthly inflation rates of 6.5% and 0.8% since January 2013 and February 2015 when the rates stood at 6.2% and -0.2% respectively. From your perspective, what mind-set should consumers have to withstand these inflation rates?
A3. It is a known fact that as inflation increases, retail prices also go up ultimately putting a strain on the consumer’s pocket or wallet. Therefore its time for everyone to think proactively about the future and start getting into the habit of knowing how to save wisely, spend on what is necessary and put invest away by investing over a longer term period. The good thing about investing let’s say with a 32-day Notice is that the more you save the higher your interest that you will get at the end of the day.
Q4. What is the best way of starting a savings habit?
A4. The saving journey begins with budgeting and it is important to have a targeted percentage of your income that will contribute to your savings on a monthly basis. This will in turn maintain the discipline as well as adjust with salary fluctuations.
Q5. How can I save when I have so much debt?
A5. Debt isn’t always a bad thing as long as the debt servicing costs are within your affordability. If you feel overly indebted, take the necessary steps toward reducing it. You’ll find that the cost of servicing your debt is usually higher than the gains from saving. Focus on paying off your highest interest debt first and then, once it has all been reduced, use that money to start saving.
Q6. How easy is it to save?
A6. It takes just 21 days to create a new habit. Put aside a small amount every day and by the end of the month, you should have a lump sum to put into a savings account. The great news is that certain products have the flexibility of saving on your behalf. A predetermined amount can be deducted automatically from your transactional account and deposited into a savings account through a debit or stop order. Help yourself by getting into the discipline of spending what is left over after setting aside an amount into your savings as opposed to saving what is left over after spending.
Q7. What should I be saving for?
A7. There are different types of saving goals to meet your specific financial needs. A short-term savings plan can be used for things like family holidays or to build a cushion for unexpected expenses. A medium-term plan can be used for large ticket items like a deposit for a house or a wedding. A long-term plan can be used for retirement or a child’s tertiary education.
Q8. What is investing and why would you recommend this to anyone?
A8. As life becomes more and more expensive Namibians should think ahead and become financially independent. Investing means to put away some money over a period of time with the expectation that it will generate a return in the future. When you invest your money, it means that instead of spending it, you are putting it in some sort of vehicle that will use it to make more money. Investing in a nutshell creates wealth. It is easier to become financially independent when your money is working for you. Look at it this way, the longer you invest, the better the interest and the return from that investment. Ultimately that will also mean the less you will have to reply on your working salary to support yourself and achieve your financial goals.
Q9. What is the one great advice that you can give on this topic (saving and investing)?
A9. The best thing money can buy is financial freedom!