Johannesburg – It makes sense to start saving for lobola early to allow yourself enough time to earn returns, according to Alexander Forbes financial wellbeing consultant Happy Ngale.
“Lobola is an African practice involving provision of payment - either in cash or cattle - from the prospective groom’s family to the parents of the prospective bride for customary marriage,” explained Ngale.
“It is a token of appreciation and respect to the parents of the bride and a way of building relations between the two families. It is only through payment of lobola that a couple is considered married.”
Cattle is often used as currency, and the families agree on the number of cattle and the price of each cow. Lobola also includes the exchange of gifts which are agreed-upon items, explained Ngale.
Lobola is an expensive practice. If you are considering a short-term investment vehicle to save up for lobola, you need to be aware of factors such as liquidity, the portfolio's risk profile and the term of the investment, said Ngale.
There are four possible options you can use to save money over the short term.
Tax-free saving account
Holders of a tax-free saving account are exempt from paying tax - there is no income, capital gains or dividend tax to be paid on returns. A maximum of R33 000 can be invested per tax year, and a maximum lifetime contribution of R500 000 can be made. This is a monthly contribution of R2 750.
“You can withdraw from this investment at any time with no penalties or restrictions - the investment offers the liquidity required for short-term investing,” said Ngale.
There is no limit to how much can be invested, but the returns are taxable. The funds are easily accessible with no penalties or restriction. Unit trusts have exposure to equities and property investment, which provide returns over the long term, explained Ngale.
Money market account
This interest-bearing account yields an interest higher than a bank call account, explained Ngale. "You invest directly into cash and various money market instruments. The returns are dependent on interest rate level.” Low interest rates will yield low returns.
This informal savings vehicle is popular in townships. “As a member of a stokvel, you receive a lump sum of money in cash as payments rotate among members on a monthly basis,” said Ngale. Some stokvels contribute amounts monthly and these funds are invested in a stokvel account. At the end of the year, each member receives lump sum amounts.
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