Savings options for retirement planning

23/09/2019

Is a “mini-retirement” possible?

Imagine being able to enjoy the benefits of retirement while you are young enough to make the most of it – call it a mini-retirement. To achieve it, you need to grow your wealth with the best savings interest rates and create smaller goals rather than just one big retirement goal.

A mini-retirement is an increasingly popular alternative to traditional retirement. People from around the world are pursuing it. It’s a choice you make to leave your full-time work and “retire” for a period ranging from a couple months to a couple years. It can also be a good option for those looking to advance in their career. Large salary increases typically come from changing employers instead of staying with the same employer. A mini-retirement may be great to fill in the gaps between jobs!

With planning, preparation and a fixed savings account, a mini-retirement is possible.

How can I take a mini-retirement?

Say you wanted to take a 9-month mini-retirement. You would need to save up nine months of living expenses, plus perhaps an additional three months as a “buffer” in case it takes longer than anticipated to find employment.

Remember when investigating savings options, you should seek out the best savings interest rates. Here are some scenarios about how long it would take to save 12 months of living expenses:

  • If you save 5% of net income, it could take 20 years
  • If you save 10% of net income, it could take 10 years
  • If you save 20% of net income, it could take 5 years
  • If you save 40% of net income, it could take 2.5 years

Of course, the more you’re able to save, the faster you can do this and the more likely it is for mini-retirement to be possible. Don’t fret if your financial situation may not allow for this – you can apply the same strategies to help reach your other goals!

Simple money saving strategies

You may have other savings goals besides mini-retirement. Perhaps you want to save up to embark on a one-week vacation, or to save up for a deposit on a new home. Regardless of your goals, you can help yourself to achieve them by implementing a couple of simple yet effective money saving strategies.

One such strategy is to automate your savings contributions on a regular basis. This “pay yourself first” mentality is a great way to help you save up for your goals. Don’t be afraid to start small – even modest monthly contributions of R100 can add up quickly over the years!

Other money saving strategies depend on your household spending, which is why you should always be tracking your expenses. Doing so allows you to determine areas where you could possibly save money.

Food is the most common category where a household can easily cut down on spending. Cutting down on buying coffees (R20 per day) and lunches (R50 per day) can save you up to R1400 if you work a typical 22 days per month! Another way to reduce food costs is to be intentional with trips to the supermarket. Always make a shopping list before heading out so you can be sure to prioritise on what your household needs.

Savings options for money

The act of simply saving money is not enough. You need to invest your savings wisely to counter the effects of inflation. With all the different savings options out there, you want to be sure you’re getting the very best savings interest rates.

Notice deposits

A notice deposit is a savings account that allows access to your funds once you provide notice of withdrawal and the notice period has passed. For example, to withdraw money from a seven-day notice deposit, you must inform your bank seven days before the date you actually want the money.

African Bank offers notice deposits with market-leading savings interest rates. You can currently earn up to 7.54% per year in interest on a 90-day notice deposit. A 90-day notice deposit is great for long-term savings (i.e. for a mini-retirement) where you know you will need the money well in advance. If you may need the money at shorter notice, African Bank also offers 7-day and 32-day notice deposits.

Finally, one great feature offered by African Bank is the ability to make a debit order and automate your contributions — this is one of the great money saving strategies we mentioned earlier. The minimum additional deposit is R100.

Fixed deposits

A fixed deposit is similar to a notice deposit, except you typically cannot access your money until maturity. The longer you commit to putting away your money, the higher the savings interest rates available. This is the least flexible of all savings options available to you since the money is inaccessible until maturity. However, the interest rates may be higher to compensate for that.

Savings accounts

Savings accounts tend to have lower interest rates, but they have the most flexibility. You can access funds in a savings account at any time. Savings accounts are great for emergency funds and short-term savings. However, when it comes to long term goals, there are better savings options available to you.

A mini-retirement may be a feasible idea for some, but not everyone. Whether you are seeking a mini-retirement or simply an overseas holiday, you can use the above knowledge to help reach your long-term financial goals.

Saving money can be made easier by both automating your contributions and tracking your spending to find areas for improvement. When it comes to the money you’ve put away, there are many savings options such as notice deposits, fixed deposits, and savings accounts. Notice deposits are a great option — they strike a balance between accessibility and earnings potential. African Bank offers market-leading savings interest rates on 7, 32, and 90-day notice deposits!

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About African Bank

Our mission is to be a successful Retail Bank offering a wide range of products and services to the consumers of South Africa. The people who work for African Bank represent the diverse population of South Africa; therefore we are a reflection of you, of all South Africans. We seek to provide value - more than our consumers expect of us. We promise to live our purpose 'humanity through banking' in all that we do and we are confident that we can, because 'We are You'.