Saving money -- too much saving going on? -- July 2007

Saving Money for Your Retirement
Much has been said about the low rate of savings in SA and in other parts of the world. One merely has to conduct an internet search or open any financial newspaper to see how much the topic has been discussed.

There has been so much debate over this topic of saving money that now there’s even a contrary view.

Yes, there are schools of thought that are suggesting that it is in the interests of asset managers and financial planners to con you into saving more for your retirement than may be necessary.

Typically persons in the financial services industry earn fees on assets on which they advise or on assets under management. The more assets under management, the more fees they earn. But saving too much for retirement? This is truly an interesting notion.

In all my time of advising clients, I have not once been sued by a client for advising him or her to put away more than is necessary for their retirement.

The money does not become the property of the asset manager; when saving money you are not giving up your cash, you are merely deferring consumption until a later stage.

There are three steps before an individual starts saving money and accumulating real wealth

1. S/he starts to spend less than what they earn and have a surplus.
2. S/he begins to accumulate capital. This capital may be accumulated for retirement, deferred enjoyment or to become more independent.
3. S/he has accumulated this capital and earns interest on interest - a phenomenon often referred to as the eighth wonder of the world.

Money must serve you, not the other way around.

Being in control of your money will help you be in control of other areas of your life. Did you know that in the US, 80% of divorces are attributable to disagreements concerning money? I doubt the position here in South Africa is far different.

Bold lifestyle choices (for example, forgoing the purchase of a new motor car) as opposed to keeping up with the Joneses will result in financial independence being achieved much faster. The confidence of knowing you are on the road to financial independence can be a far more rewarding sensation than driving the latest vehicle.

Building wealth will also give you more choice and flexibility in your own life. It gives you the option to retire early from a relatively high-paying job to pursue another, lesser-paying but more rewarding job later in your life - for example, teaching. It can also be a way to provide for your own and your family’s future in a socially responsible way.

Today there are many more options available to the individual to facilitate saving money. Previously individuals relied on term deposits, debentures and bank accounts. Access to the stock market or shares was reserved for the wealthy. Today there are a multitude of investment options including, but not limited to, unit trusts, instalment shares, retirement annuities and warrants. Not to mention the availability of options offshore as well.

However, the sheer volume of investment options available for the individual today also makes it necessary to consult with an expert, for example, a well qualified financial planner.

My advice is to engage an independent, fee-based certified financial planner who is focused on your best interests and can provide impartial advice.

This will allow you to build up your savings and plan for your future, giving you financial independence. If you do not have a certified financial planner, visit the website of the Financial Planning Institute on www.fpi.co.za to select one.

Debbie Netto-Jonker, CFP™, is founder of Netto Financial Services and was financial planner of the year in 2001.