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R150: Six Cappuccinos or a year off your home loan?

If you have R150 in your bank account once all your fixed monthly expenses have been paid, you may feel it is just too little to make a dent in your debts or contribute to long-term saving goals, so you spend it. However, Stanleur says by choosing to save it instead, R150 p.m. can take you far in the long term.

“R150 may seem such an inconsequential sum that people would rather use it for a few cappuccinos or to treat themselves to a takeaway dinner. But doing this means missing out on the opportunity to turn a relatively small amount into a larger long-term investment.”

Here’s what R150 could get you in the short term:

  • 16 California rolls
  • 7 cheeseburgers
  • 6 cappuccinos
  • 2 basic T-shirts
  • 2 movie tickets
  • 1 gigabyte of data

To practically demonstrate how giving up these instant gratification expenses can benefit you in the long term, has done the maths:

1. Towards your retirement:

An additional R150 per month towards retirement can add up to between R400 000 and R500 000 in 30 years’ time, depending on what the investment return will be. For example, an 8% return will yield R405 000 and a 9% return will yield R473 000, after investment costs. (This also assumes that you increase the R150 per month in line with inflation each year.)

2. Towards your home loan:
On a R700 000 home loan, assuming an interest rate of prime (10.25%), the monthly instalment for a 20-year loan will be R6 608 per month. When contributing an extra R150 each month, the loan will be paid off in around 19 years instead of 20 and you’ll save approximately R70 000 in interest over this period.

3. Paying off your credit debt:
Paying off a credit debt of R15 000 over three years works out to a repayment of R525 per month (at an interest rate of 18% per annum). An extra R150 per month means you can pay it off nine months earlier, saving approximately R1 100 in interest.

Stanleur says that practical exercises like these make the longer-term gains more concrete, “The trick is to switch your thinking from a short-term bias to a longer-term one. People with longer-term mindsets typically have more retirement savings and are often better at managing credit. Additionally, being clear on your goals means that you will likely find ways to save and avoid expense creep.”

The values above are used are for illustrative purposes only.