We are repeatedly told that saving is important, that we should spend less than we earn, that we should have an emergency fund, and that compound interest rewards those who start early. While all of this is true, it does not go far enough. In our experience, the real value of saving lies not only in the amount accumulated, but in the structure, discipline and optionality that savings create within a broader financial plan.
Saving is often confused with investing, and while the two are closely related, they serve different purposes. Saving is generally about preserving capital for a known or reasonably foreseeable need, while investing is about growing capital over time by accepting a level of risk and volatility. Savings are therefore less concerned with beating inflation over the long term and more concerned with accessibility, certainty and timing. Investments, on the other hand, require patience, time in the market, and the emotional resilience to withstand short-term fluctuations in pursuit of long-term growth.
This distinction matters because money without a clearly defined purpose is often poorly positioned. Funds that may be needed in the next few months should not be exposed to market volatility, just as long-term retirement capital should not sit indefinitely in cash. When short-term money is invested too aggressively, there is a risk that it will need to be accessed at precisely the wrong time. When long-term money is held too conservatively, there is a risk that inflation erodes its purchasing power over time. A well-constructed portfolio therefore requires both savings and investments, with each playing a different role in protecting and growing wealth.
Importantly, savings provide liquidity, and liquidity is one of the most underestimated components of financial security. A household with sufficient accessible savings is better able to absorb the unexpected without disrupting its long-term plan. Costs such as medical shortfalls, excess payments, insurance deductibles, home repairs, retrenchment, family emergencies, travel needs and business interruptions are invariably inconvenient – and without accessible savings, investors are often forced to draw from long-term portfolios, sell growth assets during downturns, increase expensive debt, or suspend retirement contributions – all of which can have a detrimental effect on the wealth creation process.
This is why an emergency fund is a vital shock absorber in one’s portfolio – bearing in mind that the appropriate level of emergency funding will differ from one person to the next, depending on income stability, family responsibilities, debt levels, medical aid structure, business ownership, access to credit and the number of people financially dependent on the household. For example, a salaried employee with predictable income may need a different level of cash reserve from a business owner whose income fluctuates, while a single person with no dependants may have different liquidity needs from a family supporting children, ageing parents or extended family members.
The choice of savings vehicle also matters, with bank savings accounts, call accounts, notice deposits, fixed deposits, money market funds and income funds all having a place, depending on the objective. The trade-off is generally between access, yield and certainty in that highly accessible accounts tend to offer lower returns, while fixed deposits may offer higher rates in exchange for reduced flexibility. Money market unit trusts and income funds can provide useful alternatives, but investors should still understand the underlying risks, costs and liquidity terms rather than assuming that all cash-like vehicles are identical.
Tax-free savings accounts are another useful tool, although the name can be somewhat misleading. Despite the word ‘savings’, these accounts are often best used as long-term investment vehicles because of the valuable tax benefits on interest, dividends and capital gains. Using a tax-free savings account for short-term cash needs may be convenient, but it can undermine the long-term value of the structure, particularly because contribution limits apply and withdrawals cannot be replaced without affecting those limits. In many cases, the greatest benefit is achieved when the underlying investment is growth-focused, and the account is allowed to compound over many years.
Retirement funds, including pension funds, provident funds and retirement annuities, also require discipline, although they should not be treated as savings in the traditional sense. By their very nature, they are long-term investment structures designed to provide for retirement, with tax incentives and restrictions that support that objective. It’s important to note that, while the introduction of the two-pot retirement system has made partial access to retirement savings possible, accessibility should not be confused with affordability – and every withdrawal from retirement capital has a long-term consequence on your retirement nest egg.
In our experience, one of the more overlooked savings tools is the home loan. For many South Africans with access bonds or flexible home loan facilities, paying additional money into the bond can be an exceptionally effective form of saving. This is because every extra rand paid into the bond reduces the outstanding balance on which interest is calculated, creating a guaranteed saving at the bond interest rate. For a homeowner paying a relatively high interest rate, this can be more powerful than holding excess cash in a low-yielding bank account, particularly where the interest saved is effectively after tax.
That said, using a bond as a savings vehicle requires discipline in that the benefit is only realised if the additional repayments remain in the bond and are not repeatedly withdrawn for lifestyle spending. If you end up treating the access facility as a revolving credit line, you may end up with no meaningful reduction in debt and no dedicated savings reserve. However, used correctly, a bond can form part of a disciplined liquidity strategy, particularly once an adequate emergency reserve has been established.
It’s also important to appreciate the psychological aspect of saving as it requires the ability to prioritise future security over immediate consumption, to distinguish between needs and wants, and to create systems that reduce the need for repeated acts of willpower. For most people, the most effective savings habit is not waiting to see what is left over at the end of the month but automating savings as soon as income is received. This discipline is particularly important because lifestyle creep is one of the quietest threats to long-term financial independence. As income rises, expenses often rise to meet it, and without deliberate structure, increased earnings do not necessarily translate into increased wealth.
In our work with clients, we often find that the absence of savings creates emotional fragility. People with no liquidity tend to make decisions under pressure, delay necessary maintenance, depend too heavily on credit cards, cash in investments, borrow from family, pause insurance premiums, or make reactive choices that solve one problem while creating another. By contrast, those with well-structured savings tend to have more options, more confidence and greater staying power when life becomes uncertain.
We believe the real conversation should be deeper than whether one is saving enough. The more important questions are whether savings are properly structured, whether they are aligned with specific goals, whether they are accessible when needed, whether debt is being managed efficiently, and whether short-term liquidity is supporting rather than undermining the long-term plan. Good saving is not about hoarding cash or being fearful of spending, but rather about building the discipline and flexibility to make better financial decisions over time.
Have a great day!
Sue
