Saving for a purpose, with a little help from friends

Stokvels in South Africa, while largely misunderstood by traditional financial firms, are a thriving community savings system. The National Stokvel Association of South Africa estimates that stokvels are worth R49-billion.

Traditionally, stokvels have functioned as vehicles to assist families with funeral arrangements. They are also used to take advantage of discount deals at wholesalers for basic household items and staple foods with a long shelf life.

Another popular stokvel structure is a "revolving bonus" system, whereby members contribute a certain amount monthly, with each member in turn getting the group's contribution every month.

Some stokvels have evolved into long-term investment clubs, in which relatives and friends pool their money to save up for their children's education or to buy big-ticket items.

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Stokvels are also useful if you and a group of friends or associates have a common goal and need a "buddy" system to keep everyone accountable - particularly if some members are terrible at committing to putting money aside on their own.

The first step is to decide on the structure and purpose of your stokvel. You need a system of transparency and accountability within your group. Having a treasurer, for instance, can help you with the financial aspects of the planning, particularly if you have a large group.

Have a constitution that outlines the purpose of the investment club and the implications of skipping payments. You need to have clauses that cover everything, such as the possibility of someone not being able to make payments because they have run into financial difficulty. Do you give them their share back? Do they take a break?

You also need to know what you'll do if somebody in the group dies. What will happen to their contributions? Having a treasurer who records everyone's contributions will make paying out in such circumstances easier.

Depending on the size of your stokvel, you could link everyone to the bank account so all are aware of how much is in the account.

If you are forming a stokvel with travel in mind, deciding on a savings target can be governed by the destination, or you can settle on contributing a fixed amount each month and choosing where to go later.

Choosing a destination is a great way to help you set a target for how much you should be putting aside. Are you keeping it local or going abroad? If local, will you hire a mini-bus or car-pool?

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If you're going abroad, you could include the cost of visas in the calculations, but let everyone take care of their own accommodation so that people aren't pressured into staying at a five-star resort when they are happy to stay in a backpackers' lodge.

It's a short-term savings plan so don't invest the money where the capital can be reduced by market movements. A fixed-term bank account is likely to be the best option, rather than a unit trust or exchange-traded fund product, which are more suitable for stokvels that have a long-term savings horizon.

The benefit of travelling in a group is that you can take advantage of group discounts. You might want to elect someone to alert you to group specials, particularly for basics such as flights and accommodation.

Apart from travelling, there are plenty of things you can start a stokvel for, such as buying school supplies or uniforms with other parents. You could also have a stokvel that targets end-of-season sales.

Whatever you decide, keep in mind that members will have individual tastes, so it may not always be possible to cater for everyone. Tailor your stokvel to your group's specific needs.

tsamelad@sundaytimes.co.za