Most high-net-worth individuals (HNWIs) build their wealth strategies around investments such as equities, bonds, and property. What is often overlooked in these strategies is the foundational role that savings can play. Savings should not be seen as a passive or outdated habit, but rather as a strategic tool that supports long-term financial resilience and creates meaningful opportunities.
Hein Klee, executive at Nedbank Financial Planning
During a month dedicated to savings awareness, it's worth reframing saving as more than just a safety net or emergency buffer. Saving can act as a catalyst for wealth, unlocking liquidity, creating tax efficiencies, and ensuring that wealth remains adaptable in uncertain times.
Wealth that lasts is usually built gradually. It grows through consistent action, and regular contributions often outperform sporadic windfalls over time. This is where savings prove their value. For example, a disciplined monthly deposit of R10,000 earning 7% interest a year will grow to more than R1.7m in 10 years and over R5m in 20 years. This growth is achieved through the power of compounding, without the volatility associated with equity investments.
However, this consistency is where many people stumble. This is not usually due to a lack of knowledge, but rather to delays or overemphasis on asset-based strategies. The real advantage in wealth creation often lies not in sophisticated products, but in the disciplined application of proven fundamentals.
Cash does not need to be an idle asset. For the committed wealth builder, it offers strategic flexibility. Liquidity allows for quick action when opportunities arise and provides protection during downturns. Having too much wealth tied up in illiquid assets can leave you exposed when you need agility most. In this context, savings serve as more than just reserves. They act as strategic buffers that prevent forced asset sales or rushed borrowing and support well-timed, calculated decisions.
Global trends show a growing appreciation for the value of cash among high-net-worth individuals. According to Aspire Research Group, by early 2023, cash and cash equivalents made up nearly 34% of high-net-worth individuals portfolios in North America, up from 25% the previous year. This shift reflects a preference for flexibility in uncertain markets.
With interest rates remaining elevated in recent years, high-net-worth savers have access to a range of tools to enhance the performance of their cash. Fixed deposits, notice accounts, and money market funds are offering strong yields. In South Africa, money market funds have delivered steady returns in the mid to high single digits, and in some cases, even low double digits. These returns allow investors to preserve capital while maintaining access to funds, keeping reserves productive over time.
Tax efficiency is another important factor in maximising savings. Tax-free savings accounts (TFSAs) provide a simple way to earn interest, dividends, and capital gains without incurring tax. While the annual limit of R36,000 and lifetime limit of R500,000 may seem modest for affluent investors, the long-term compounding effect makes TFSAs something of a 'no-brainer' addition to any wealth-building strategy.
Given the volatility of the rand, currency diversification is another smart savings approach. Offshore savings, whether through foreign currency fixed deposits or international money market funds, help protect the purchasing power of cash. These strategies also provide access to global opportunities without the need to liquidate existing investments. It is important to structure these moves within South African Reserve Bank exchange control limits and tax regulations.
Of course, the distinction between saving and investing is often subtle. For many wealthy individuals, regular investing is simply a disciplined form of saving. Automating monthly contributions ensures that a portion of your income is consistently allocated toward long-term goals. This approach, known as rand-cost averaging, helps smooths out market fluctuations and removes emotion from financial decisions.
All of this depends on consistent execution. A strong financial plan requires steady follow-through. National Savings Month serves as a reminder that effective wealth strategies begin with the basics. The key is not a clever idea or a perfect product, but a habit. The earlier the habit is formed, the greater the long-term rewards.
