By Mzukona Mantshontsho
When planning to get married in the near future, it’s important to consider shopping around for the best savings instrument in the market. For those whose customs dictate the payment of Lobola, the cost implication is even higher.
Phala Modise, Financial Advisor at Gradidge Mahura Investments, said “When deciding to get married, it’s also important to map out a plan of how it’s likely to impact your finances in the short and long-term. For example, when planning to get married in 3 years’ time, and the kind of wedding you are aiming for costs about R100, 000 in current Rand terms, this value can escalate by about 6% considering inflation.
The need to save is more important for those who need to pay Lobola in addition to the costs of the actual weeding. As a first step, one should shop advice for and a savings vehicle that is aligned with their goal. South African banks and investment houses have various products that can be used for savings for short and medium to long term goal such as unit trusts, savings accounts, fixed deposit accounts and money market accounts”.
“However, it’s important to note that each savings instrument operates differently and will therefore deliver different results’. Saving does not always have to be through a financial services institution, some people use stokvels as a means of saving. As a member of a stokvel, you receive a sum of money in cash from a group of members as rotational payments are made to each member on a monthly basis. While it’s tempting to use the cash, the recipient can save the money through a fixed deposit bank account, which offers higher interest rates than an ordinary bank account. For those who have a larger appetite for saving, money markets is a good place to start.
“Investing in money markets means investing directly into cash, a money market fund pools all invested cash and invests this in various money market instruments. Returns on money markets are largely dependent or governed by interest rate levels. In other words, if the interest rate is high money markets will deliver favourable returns but in a low interest rate environment the gains will be slimmer.
For example, if R1000 was invested into a money market fund over the last 18 months, assuming no withdrawals were made, the invested amount would have grown by 9.86%and the total return in Rand terms would be R98.07. Not bad, given that bank savings account rates are sitting below 5% per annum. “Due to their short-term nature, money market investments require an investment horizon of no more than 18 months,” said Modise.
Some unit trusts are useful investment tools for long term savings as investments into these products take longer to accumulate decent returns as they are invested directly into equities, which means volatility is high but over an extended period of time returns are likely to be higher.
