How to start a savings club

Problem sticking to your savings plan? Joining or establishing a club may just be the solution.

Savings clubs are usually formed by groups of people who pool their money together in order achieve certain goals, like Christmas expenses, travel, expensive purchases and retirement. The fruits of a well-established savings club are the sweetest, but starting such a club is not child’s play – it’s a laborious exercise that involves a lot of administrative processes.

Nico-Louis Minnie, an investments actuarial specialist at Liberty Life, lists the following as some of the most important – but not exhaustive – guidelines when starting a savings club:
• Decide who will be the members of the club.
• Set up a membership charter that outlines the membership requirements such as how new members share in the investments, treatment of members at exit and dispute resolutions.
• Define the investment vehicle (eg unit trusts, endowments or share trading).
• Outline the investment process and frequency of investments. This can also include the minimum investment per member. Also include the asset classes that you are going to invest in (equities, bonds, cash, property or perhaps a balanced investment including all of these) and the percentage in each asset class.
• Set up the necessary legal structures to protect each member’s share. For some investments this may require setting up a trust, in which case expert legal advice is critical.

If members are concerned that portions may not be clearly defined, Minnie allays those fears: “Unit trusts and endowments offer you the option to add multiple beneficiaries. However, if there are members moving in and out on a regular basis or if the contributions are not level across the member base, it is probably best to set up a trust and to outline the benefit calculation rules in the trust deed.”

Minnie suggests that once you’ve agreed as a group to form a club, you need to draw up an agreement that addresses the following key questions:
• What is the purpose of the club?
• Where will you invest?
• How much will each person contribute? How often will you meet?
• What happens if someone stops contributing or needs to cash-in early?
• Where will the account be held?
• Who will be the signatories? It is important that you open an account to hold the funds where there are at least two signatories required.
• Who will be treasurer and chairperson? Choose a treasurer who will keep track of the investments and manage the books as well as a chairperson who can convene the meetings. These roles can be changed every year.

Benefits of a savings club
• Investment clubs are able to reduce fees by saving in bulk and negotiating a discount.
• The club uses the knowledge of all the members when choosing a unit trust or share.
• Members can conduct research on different types of investments and give feedback to the group.
• By pooling resources, members gain access to investments that may not be available to individuals, such as property or BEE investment opportunities.

Disadvantages
While there may not be many disadvantages if your group is made up of trustworthy and ambitious people, there’s always the challenge that you’d be letting other people down if you fail to make your contributions.