Saving for something special doesn’t need to be daunting
Faced with a substantial purchase like a deposit for your first home, or buying a car, you know you need to save, but may feel too daunted to start, thinking it will take far too long to reach your savings goal. However, thanks to the benefits of compound returns when you invest your savings, reaching that goal can be easier than you think.
Setting a goal, and saving towards it, is a savvy alternative to taking a loan and incurring the substantial interest costs. It can also be very rewarding to save towards something like a dream holiday, or building an investment portfolio you can draw an income from so you could take a sabbatical at some time in the future. To help you calculate what you need to do to achieve your financial goals, Prudential has created an easy-to-use online tool, the Goal Calculator, that gives you instant results.
This is how it works: from a list of goals, you choose one and follow the four easy steps to determine your monthly investment contribution. Once the results are shown, you can choose to increase your monthly contribution by inflation each year by selecting the checkbox.
It’s as simple as following these steps:
- Choose your goal: Car, income, holiday, home deposit, go offshore, rainy day
- What is the current cost of the goal?
- How much time do you have to save?
- What above-inflation return do you expect on your investment?
How do the numbers add up?
Using the example of “Tsepo”, who has just gotten married in 2017, he would like to invest money so he can save towards a trip to Paris for his 10th wedding anniversary. In current terms, this blowout trip would cost R100,000. He expects 4% from his investments above inflation (a realistic real return expectation). The answer? For Tsepo to save R100,000 within 10 years for his holiday, he would need to invest R888.95 per month.
The tool shows that, assuming 6% annual inflation over the 10 years, Tsepo will actually need to accumulate a total of R179,084, since the cost of the same holiday will have increased substantially by 2027. It also highlights the advantages of investing: over the 10 years, Tsepo will have actually contributed a total of R106,673, while R72,411 has been added by his investments, making it that much easier for him to give his wife that dream trip to Paris.
Now try to calculate your own goals using the Prudential Goal Calculator.
You can also try these other Prudential tools: