History tells us that humans, insects (bees – honey), birds (North American Nutcracker – pine nuts) and animals (squirrels – nuts) plan for bad times by storing during the good times. This is a form of savings as it is deferred consumption, or income not spent.
Saving generally means the low-risk preservation of money such as accumulation of cash or a deposit account at the bank, compared to investing which indicates a higher risk. Usually if money is invested in cash, then it is savings. However, if it is used to buy an asset (shares, bonds, gold coins etc) which is hoped to increase in value over time, but that may fluctuate in market value, then it is an investment.
Humans have evolved since the caveman, but have we learnt to do this basic planning for our future when we are possibly too ill or too old to earn a living?
Mobility and longevity have changed our lives. The days of working for one employer for the whole of our working careers are long gone, as are the employers who take full responsibility for employees’ pensions and medical cover until death.
Keeping it under the mattress is not an option. In South Africa there are many different savings options, some more flexible than others and some more tax-efficient too. There are a couple of guides when saving:
- Try to save at least 15-20% of your gross income
- Review your financial planning objectives every year, but don’t withdraw your funds if possible
- Check what your current expenses are and project what capital you may need to have when you reach retirement age
In ancient times, humans saved food such as dried meat, grain and beans for winter and this evolved to the first prototype of banks consisting of merchants who made grain loans to farmers and traders carrying goods between cities around 2000BC in Assyria, India and Sumeria or ancient Mesopotamia. It was at the temples and palaces throughout Babylonia and other cities where a farmer or a merchant would bring excess stores of grain or precious objects, gems or metals for safe keeping. He would probably have been given a clay tablet confirming his deposit so he could return to claim it. Lending activities also occurred where farmers were given a seed loan and would repay this with a portion of the harvest.
Once coins were introduced and became well used, these could have been held at the Temple and a fee was paid to the Temple for this service. Today this would relate to us by the reduction in how much we spend, or in our monthly expenses.
While saving may seem ‘common place’, it Is not always practiced. Considering that there was a reason it was started many years ago, we should definitely heed its benefits and encourage a saving culture at home.
If you are unsure of where to start, build a relationship with a Financial Planner who will guide you.
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