South African property owners should pump as much of their disposable income as possible into their mortgages to avoid the pending economic meltdown caused by soaring debt problems and potential interest rate hikes, according to www.justmoney.co.za - South Africa's online guide to money.
As a new poll of visitors to www.justmoney.co.za reveals that nearly two out of five people can no longer afford to put money aside for savings or investments, www.justmoney.co.za says that for the average home owner, their property is their best and safest investment.
Paul Beadle, managing director of www.justmoney.co.za explains: "With the stock markets so volatile at the moment, the average South African is better off paying any excess money at the end of the month into their mortgage. It is less risky than stock market-linked investments, actually provides a better return than standard savings accounts, and will enable people to pay off their mortgages more quickly, saving them even more money."
The www.justmoney.co.za poll found that although 43% of respondents said they saved or invested money on a monthly basis, 38% of people confessed they could not afford to save or invest at all, whilst a further 6% said they rarely saved or invested their money. The remaining 13% of respondents said they saved or invested their money whenever they could.
The results come hot on the heels of research by the South African Savings Institute which found that people in this country on average only save 20 cents in every R100. Instead people are spending money they do not have and racking up an estimated R900 billion in debts.
Beadle explains: "People have lost the habit of saving - today consumers want everything now and buy on credit rather than saving and paying cash later. Previous generations found it harder to get credit and so there was more of a savings culture. But before the introduction of the National Credit Act (NCA), banks, lenders and retailers were keen to give credit to secure a sale, and that's why our current debt problem is so high."
Beadle says that as a result, many people do not understand about savings or investments. He continues: "A lot of enquiries to www.justmoney.co.za are from people who have a lot of debts, but who believe that if they put money into a savings account it will help them pay off their debts faster. Yet the interest rates on loans and credit cards are much higher than the rates people can earn from savings accounts, so it makes more financial sense to pay off your debt first.
"That's why paying more into your mortgage make so much sense, because for most people it is their biggest expenditure, and because for most people it is an appreciating asset - even taking into account the recent slowdown in house prices - not only will they save money over the life of the mortgage, their investment will increase in value.
"Being disciplined to pay more into your mortgage will also help cushion the blow if interest rates increase and the cost of the mortgage rises, plus it stops people getting into short-term debt with things such as loans and credit cards, which is simply bad debt."
For those that do not have property, Beadle says they should shop around for savings accounts that suit their needs: "People have to get back into the habit of saving, but first they need to understand what their savings options are and which products suit them best," he explains. "There are some very good savings products available, but there are also some very poor offerings from the banks - so-called savings accounts that actually pay very little in interest."
www.justmoney.co.za has published some savings and investment tips
1. Pay as much into your mortgage as possible! If you do have money left over at the end of the month, use it to pay off more of your mortgage. Not only will this save you interest and money on your home loan, it will help you pay off the mortgage quicker, saving even more cash. And as your home should be an appreciating asset, it is one of the best investment options around!
2. Pay off your debts first! The debit interest on even the cheapest debt will be much higher than what you can earn in the best savings account, so clearing your debts is more cost-effective in the long term
3. Get a bank account that pays decent interest. Many ordinary bank accounts pay little or no interest, but some accounts - such as those offered by Go Banking and Capitec - offer all the transactional abilities of standard accounts, but also pay you interest on even the lowest balance in your account
4. Save as much as you can - regularly. Experts say should save at least 15% of your salary each month and have a cushion of three months' salary in the bank for ‘a rainy day'. Work out your budget, see how much you can afford and set up a debit order to save a regular amount each month
5. Short-term or long-term savings? If you want instant access to your savings, then the interest you can earn will be lower. But if you tie up your money for a year or two, or even with a 32-day notice account, you'll earn more and the temptation to spend it will be much less!
6. Get investment advice. If you are looking for potentially higher returns from your money, then investment in unit trusts or a pension is something to consider. But this brings higher risks - particularly with the volatile stock markets - so always get advice from a qualified independent financial planner.
The www.justmoney.co.za Poll
How often do you put money away in a savings account or in to investments?
43% - I save or invest money at least once a month
13% - I save or invest money whenever I can
6% - I rarely save or invest my money
38% - I don't have enough money to save or invest