Saving or Investing: What’s best for your financial future?

Johannesburg - Everyone should be able to look forward to a prosperous and secure financial future. But what's the best way to start creating it? In South Africa, many people struggle to maintain their savings plans as they face the rising  cost-of-living and frequent economic turbulence. For others, investing seems like an intimidating process, especially if we don't understand the potential benefits and risks associated with it. 

However, Andrew Codd, Lead Specialist, Proposition Management (Middle Market) at Liberty, says that when financial knowledge is put into action, starting to save for a life-changing purchase, or investing available funds, you can secure your and your family's financial future. 

"The 2022 Budget speech has given South Africa a bit of breathing room on the fiscal front – not a lot, but enough to give us hope – with our local economy having grown by more than 4.5%, the highest in over a decade. But what does that mean for you and me? This is a chance for the average person to recover their finances a bit, to start saving and investing effectively again," says Codd. 

In recent weeks, economists have been suggesting that South Africa is likely going to see interest rate and petrol hikes, which means we'll have to all find ways to maximise the potential of every cent we earn. 

"It's important that we, as individuals, understand the difference between saving and investing, and which route we should pursue. Every person's financial situation is different, but one thing that both saving and investing have in common is that they're both strategies to help you grow your money and meet your goals," says Codd. For those of us who need help with these strategies, financial literacy courses, such as Liberty's Mind My Money programme, are ideal for setting goals, creating savings plans, and deciding on whether there's room for investment in their budgets. 

The key difference between saving and investing is that saving has virtually no risk. You place your money in a bank account and your financial institution grows it – slowly. Investing can provide higher returns, but there is a risk of loss. However, the risk is entirely under your control, and there are low-risk investment options that would guarantee your initial investment returns. 

What many people don't realise is that insurance products, like retirement funds are low-risk investment solutions which provide the foundation of your financial future at retirement. Equally important to note is that an investment also doesn't necessarily always translate into instant cash back but can be the financial saving grace you need in the event of a tragedy. 

"For example, the Liberty Funeral Plus plan is designed to be an affordable way to protect our finances in the event of a loved one passing away, quickly paying out to cover the costs of a funeral. Life cover, funeral cover, and medical aid are also investments, just not in the way many people traditionally understand them," says Codd. 

So, when should I be saving? 

If you need to access your money frequently, a high-yield savings account is a good option. Savings can also be used to pay off any existing, high-interest debt (like credit cards) before starting an investment journey. 

If you also don't have an emergency fund – many experts say you should try and save up to three to six months' salary – it's best to build towards that first. 

So, while saving can be a solid, easily accessible way of growing your money, because the returns are lower, the money may lose value if inflation rates get too high. 

"Our financial advisers say that thankfully, the budget speech has given us an indication that there won't be any tax rises this year (in fact, even slightly lower taxes), so now is a good time to put money back into our savings," says Codd. If one is opting to save this year, a tax-free savings account, which can house up to R36 000 per year is a good option. 

When should I be investing? 

If you're willing to wait and can afford to put money aside for up to 5, 10 or 15 years at a time, investing can lead to some very good returns. With the right financial advice, you can utilise a series of investment products that are almost as stable as savings accounts. However, this would ideally be with the help of a trusted financial adviser. With a diverse portfolio of investment products, both high and low risk, over time, even in times of economic downturn, you'll still profit from a long-term investment. 

In South Africa, there are investment options, such as Liberty's own Investment Plan, which provide that, in the event that your money is not growing, you'll have your initial investment returned. 

"We know that financial flexibility is so important in our country, so it's important that there are investment products where the amounts are affordable, easily accessible, and even more importantly, protected," says Codd. 

"I hope that we can continue to build a culture of savings and investment in South Africa – we all have hopes and dreams for ourselves and our families, but with a little financial education, we can make them achievable," he concludes.