Real winners over the World Cup period will continue to hit savings goals rather than splurge on unnecessary items and jeopardise two years of good defensive work.
The call to ‘keep your eye on the savings ball’ comes from Mark Cunningham, head of financial planning at Imara Asset Management, South Africa.
He loves the World Cup buzz, but warns that losing discipline now might be unwise for families that have been under pressure from high levels of debt.
“Macro economic indicators look good,” says Cunningham, “but many families are only now beginning to get on top of credit-card debt and other obligations.
“Now’s not the time to score an own-goal by renewed recourse to credit – even though some financial institutions are today happy to loosen the tight controls they’ve applied for the last two years.
“We advise clients from middle income groups and those with relatively high net worth and know that many families have reviewed their lifestyles and started to save because of the dramatic wake-up call they received during the financial crisis. In World Cup year and every other year, we advise clients to keep their eyes on long-term goals.”
To highlight the consequences of a little backsliding, Cunningham considered an item of discretionary spending related to the World Cup – a R10 000 plasma TV. He looked at the real cost and then examined a sensible savings-based alternative.
His calculations showed:
R10000 spent on a plasma TV, paid off over 12 months at 17%, would add R900 to a family’s monthly outgoings. Total cost would be R10790. If the TV was paid off over four years, the monthly instalment falls to R285, but the total cost rises to R13657.
By comparison, R900 invested for 12 months, assuming 10% growth, would grow to R11300 at the end of the first year.
Left to grow, without adding any contributions, the investment would be worth R18 592 after five years, R30590 after 10 years, and R82809 after 20 years.
If R284 (the approximate monthly instalment over four years) was put away each month for 20 years, the future value would be R217458 after 20 years, at 10% growth.
“The scoreboard’s clear enough,” says Cunningham. “Splurge and buy that fancy TV over four years and you’ll be nearly R14 000 out of pocket. Save the R900 each month for a year, and at the end of five years you will have R19000 to play with. Any football fan would applaud a great save like that!”