October 9, 2023

Growing Your Savings in SA – The Harsh Truth

Growing savings in South Africa - Debtline

When paychecks come in, we’ve been taught to split the funds into categories of monthly expenses, essentials, luxuries, and savings.

In normal circumstances, it would be easy to split funds across these different categories without a worry.

However, the current financial climate is making it impossible for South Africans, forcing them to cut luxuries and, more importantly, savings.

The Reality of Savings in South Africa

Deloitte’s South African Investment Management Outlook 2023 compares the savings rate in South Africa to that of other countries. Results reveal that the saving habits here are far below the average, which is raising concern.

On the one hand, there is the urge to educate and encourage South Africans on the importance of savings, while the financial climate should be taken into consideration.

Read: Your Complete Guide to Savvy Savings

With the high cost of living, South Africans are forced to spend the majority of their income on things like daily living expenses and other essentials. Leaving little to no room for savings or anything extra.

Many still believe that it’s important to have access to services that provide financial advice and education.

Cause for Concern?

A recent study revealed that less than a third of South Africans have saved their retirement money after leaving employment. Many have opted to cash out their entire retirement fund, which will not leave them with enough money for a comfortable retirement.

The study also shows that about 62% are likely to use all their retirement funds before retirement if the rules allow it.

Read: Saving Tips – Ways to Set Yourself Up Later

A possible solution is a new two-pot system, which will allow members to withdraw funds from the available cash pot should they need to. The savings pot will take a maximum of 10% of their current retirement funding to set the savings pot for retirement.

This savings pot will seed at a max of R25,000 and limit minimum withdrawals to R2,000. Thus, the savings pot is your accessible savings that can be withdrawn while the rest of the retirement goes into a separate pot, which will remain inaccessible.

Grow Your Savings with the Two-Pot System

With this two-pot system, members will still be able to withdraw should they require to, but it will also assist in ensuring that retirement funds are available by the day of retirement.

With early access to a third of the retirement savings, it’s possible for members to escape the clutches of debt that may occur with financial shocks or unforeseen emergencies. The portion can be used during financial hardships, helping members steer clear of debt cycles and high-interest loans.

Read: 5 Reasons Why South Africans Are Buckling Under Their Debt

It’s visible that when there’s no cash flow available, the retirement fund becomes a viable option. However, while it may be a short-term solution, it can lead to long-term problems. Something like the two-pot system can help users get out in the clear without depleting their retirement funds.

While the pandemic had a hand, the National Treasury revealed that less than 6% of South Africans could retire comfortably even before the pandemic. The odds are that most will outlive their retirement savings. This is why it is becoming more important to have plans in place to assist while providing services to educate and encourage the importance of savings.

The Advantage of Debtline

Debtline is an NCR-registered debt counseling firm with a mission to help you get debt-free. Services include protection for those under Debt Review, assistance in negotiating debt repayments, and access to expert advice provided by professional counselors.

Read: The Benefits of Living Debt Free

For any of these services or to find out more, you can contact the Debtline team for a free callback by filling out the website form.