Savings vs debt

2012-04-13 07:46

A Fin24 reader asks:

I am 25 years old and would like to start saving. Would you recommend that I pay off my debt before I start?

Prem Govender, chairperson of the SA Savings Institute, responds:

It is always good to start saving consistently from the day you get your first job. During this period, make sure that you learn the magic of compound interest.

Please put aside at least 15% of your income every month in a safe investment. Use credit sparingly. It is cheaper to wait until you have saved the funds yourself.

If you are in debt, pay it off as soon as possible and cut out your credit and store cards.

This is because it is better to spend money you have earned than spend the money you still have to make. Remember, cuts in interest rates should be used to settle debt first and not to take on more debt.

 - Fin24


  • Konstabel - 2012-04-13 10:38

    My advice is to always limit debt only to necesseties like your car and house which most people cannot buy cash. Also secure a small line of credit for emergencies but don't use it for luxuries. Store cards are very dangerous as they encourage consumers to buy day to day goods on credit. As far as savings I think you should invest a fixed sum month in a medium or long term investment and also have a kitty for any surplus funds you may have at the end of the month which you can then blow on luxuries like a nice holiday.

  • Gerald - 2012-04-13 23:32

    Careful, one shouldnt completely cut out credit & store cards. It will prove expensive indeed. A lack of credit can only result in a lack of 'solid green blocks' on your Experian etc. This doesnt paint the prettiest pic when creditscoring your R2Million homeloan app. Oh it really matters.

  • tseliso.molukanele - 2012-04-17 08:09

    I found it is better to save in non cash "investments" like a house or the car or education or even people close to you. Cash is too liquid and if you have more of it compared to your present necessities then you will spend it. Have enough for emergencies which you cannot put out to insurance. Also I find very difficult to save if you don't have a specific goal, it could be a holiday(consumable), school fees(investment) or just being rich(investment).

  • Francois - 2012-04-17 21:23

    Nice advice, BUT, if your investment/saving does not beat inflation, you will go backward. I don't say waste money, but do a lot of homework and look out for the "sales" people that are more interested in their commission than in your savings growth. Years ago we all took out savings policies when we started working with promices of big pay-outs, but they did not tell us that when it pays out, you wont even be able to pay off all your bills because the cost of living has gone through the roof.

  • James - 2012-04-21 20:11

    It is also harder to spend money you have earned (paying cash). you begin to realize the difference between needs and wants.

  • denny.cray - 2012-06-22 10:52

    Clear off all high interest bearing debt (credit cards and the like). Try avoid debt for anything other than house/car. There is plenty of information available on the internet. Compound interest is important but remember to compare the interest rate to inflation. Often bank savings accounts don't even cover inflation - a return free "investment". Ultimately you should be looking for a diversified portfolio - try to avoid keeping all your eggs in one basket.

  • lee.vanrensburg.9 - 2012-08-03 14:55

    rather invest in the ANC!!

  • barend.dippenaar - 2012-12-08 13:25

    Prices of cars and other essential items are lower in a weak economy. I would rather enter into debt then to buy a car and gain from the low price because interest on savings are unrewarding. If I save until I have enough money the price will be higher and I will lose. Save only enough for emergency expenses and invest the maximum monthly in a Satrix ETF.

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