MOSSEL BAY NEWS - Financial advisers urge people to save, if they can, even during recessions.

A golden rule of old was that one should have six months' salary saved and easily accessible in the event of an emergency.

Many are battling financially currently. Mossel Bay Advertiser asked three financial planners what the best saving or investment options were for people who have a small amount to save per month.

Mart-Marie de Jongh, a registered, certified financial planner, said the main consideration was not how much you can save, but what you wish to save for.

She says an investor should ask themself at least three questions:

1. Do I want / need access to the money?

2. Do I plan on leaving the money invested for less than 12 months?

3. Are tax considerations important to me?

Outstanding debts

De Jongh says: "If the investor has any outstanding debts, it would be worthwhile to review the interest being paid on those debts and possibly increase the payment/s to lower the total interest bill over the lifetime of the debt (especially debts like personal loans and credit cards).

"If the investor does not yet have a specific emergency fund, it would be ideal to save up at least four to six months' expenses in an accessible, interest-earning account, like a savings account, money market account or even in your access bond."

De Jongh notes: "If the investor would like to invest for the longer term, while still having access to their savings, a unit trust investment or tax-free savings account (TFSA) can be considered. (Money is still accessible and can be withdrawn within five business days.)"

She advises that if one does not require access to all of the savings, and would like to save for the longer term, and would like to structure investments in the most tax-efficient manner possible, then in combination with a unit trust and TFSA, a retirement annuity can be considered for tax-efficient, long-term investing.

"If you can save between R500 and R3 000 per month, consider a savings account, TSFA (maximum contribution of R36 000 per financial year is allowed) or unit trust. Ideally you want to place long-term savings in a TFSA to maximise the tax-free growth you receive on the investment.

Adriaan de Waal

'Buckets'

She adds: "If an investor is able to save between R3 000 and R6 000, consider splitting such between various investment goals or 'buckets'.

"For example, save up for an emergency fund in a savings account (immediate needs), allocate a portion to a unit trust investment (medium term needs, like saving for a deposit for a property) and allocate a portion to a TFSA (longer term needs, like young children's future tertiary education)."

De Jongh says: "Should the investor wish to optimise the tax-efficiency of their portfolio, a retirement fund can also be considered as one of the 'buckets' within their savings goals."

She concludes: "I recommend automating your savings, either through a scheduled payment or debit order to ensure consistent savings with minimum ongoing effort."

Another local financial adviser, Adriaan de Waal, noted: "Investing in a retirement annuity has some tax deductable advantages. You can access the money at age 55.

"The other option is a TFSA. You would be able to put in R2 000, for example, per month. A TFSA is the only product that exists where there is no tax ever."

Des Sinclair, a financial consultancy franchise principal based in Great Brak, says that before advising on how to invest, one has to consider the client's savings goal and risk profile and consider aspects such as access to the funds, tax options and the term of the investment.

What he would do is sit down with a client and establish their particular needs and expectations.

He noted that some investors do not wish to have access to their funds because they want to be restricted from withdrawing prematurely.

Des Sinclair 

Endowment

Sinclair notes: "An endowment in a policy wrapper will avail the funds tax-free after five years. It has restricted access, but usually is somewhat more expensive than a unit trust investment.

"Unit trusts are fully accessible and the growth is taxable on an annual basis.

"The investment return of these two platforms is very much the same, as this is determined by the portfolio compilation and not the platform used.

"Cash instruments are not advisable for medium to long term investments as they do not contain growth assets, such as property and equities.

"It is key to beat inflation with your investment," Sinclair concludes.

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