It?s a tall order, but ideally you need three different savings plans. In fact, in a perfect world, you should have as many as five different savings objectives. Five, you ask? Well, here they are:

Emergency account
To provide for those mishaps that can cost a small fortune: the excess on your car if you have an accident, medical bills not covered by your medical aid, appliances that expire, braces for kids, a funeral. It should also be money you set aside to cover the following:

  • Luxury or lifestyle items
    TVs, hi-fi equipment, vacations, furniture, Christmas presents, a new wardrobe.
  • Education
    Do not ignore this expense ? educating and raising a child is costly and it needs to be budgeted for.
  • Medical expenses
    It is estimated that a couple retiring at 60 will need to have saved R600 000 in order to cover their medical costs for 20 years. Many people do not even have that amount for their retirement!
Retirement
Most people are seriously under-funded for their retirement. Experts estimate that most retiring individuals will experience a 20 percent shortfall on their pensions and many will simply not be able to retire.

To keep on top of things you should then divide your savings into short, medium and long term.

Short-term plan
A short-term plan ranges from three to 36 months. It should be used to fund luxury expenditure and emergencies, and any larger expenses that comes up regularly like an annual insurance premium or school fees. A bank savings account can be used for money that will be needed within this period, especially if you are unsure about when you will need to access the funds.

You could also opt for a 32-day call account, a fixed deposit, or a money market account. You could also consider government retail bonds. Banks are constantly refining their savings products so it is a good idea to shop around for the best rate and product most suited to your needs.

Medium-term plan
Medium-term saving is between three to six years. This type of plan can be used to save for a car or the deposit on a home. Many people opt for Insurance Company Endowments, and although they are a good way to ensure that you save (because you sign a contract), the returns have been disappointing over the past ten years and it can be difficult to work out the returns that they offer.

A better savings vehicle is a unit trust. The cost of investing in a unit trust is usually around five percent and, if you absolutely need it, your money can be returned within 48 hours but, because of these costs and market fluctuations, you should not invest for less than three years. Retail bonds are also a good vehicle for medium-term savings.

Long-term plan
A long-term savings plan is for six years and longer. This should be used for your retirement and the stock market is an excellent way to invest your money. There is much scepticism and mythology surrounding the stock market, but the truth is that it is one of the few investments that has consistently beaten inflation over the last 20 years.

You do not have to be a high-flying speculator to benefit from the JSE. A portfolio of 12 well-chosen shares can do as well as a good quality unit trust. It just takes a little education and a long-term commitment. If this is too scary, have a look at the Satrix fund. You can invest in this through the JSE, basically you will be buying a selection of shares but without having to go through the selection process yourself.

No one said it was going to be easy to get a three-tier (or five!) savings plan started, but you should work towards it. Along with the extra effort comes one thing that money can't buy, and that?s peace of mind.