Why short-term savings are like marshmallows

Have you heard about the marshmallow test? It’s a famous psychological experiment conducted in the 1960s and 1970s by Stanford University researcher Walter Mischel. The test was designed to measure a child’s ability to delay gratification and exercise self-control. In the experiment, children were given a choice between eating one marshmallow immediately or waiting for a short period, typically around 15 minutes, to receive 2 marshmallows. The researchers observed the children’s behaviour and choices during this waiting period.

The marshmallow test has become a widely recognised measure of self-control, and its findings have been linked to various long-term outcomes in the participants’ lives. Follow-up studies have shown that children who were able to delay gratification and wait for the larger reward tend to have better academic achievement, healthier relationships, higher incomes and better overall health in adulthood.

Children aren’t the only ones who need to learn patience

Interestingly, this Harvard Business Review piece discusses the implications of the marshmallow test for executives and their decision-making processes. It highlights the importance of self-control and long-term thinking for success in both personal finance and the business world. The marshmallow test serves as a reminder that patience is key to achieving your goals, both in your personal life and in managing your finances.

Why not treat your savings like marshmallows? Nedbank supports individuals at every stage of life and helps them make the most of their money. In this article, we’ll explore how to manage surplus income in savings accounts for short-term needs.


Your emergency fund should amount to 3 to 6 times your monthly income

Determining your surplus income to put in short-term savings

Surplus income is the amount of money left over after all your necessary expenses (housing, groceries, insurance, retirement investments, etc) have been paid. To calculate your surplus income, follow these steps:

  1. List all your monthly expenses and divide them into fixed expenses (like rent and insurance) and variable expenses (like groceries and entertainment).
  2. Add up your total expenses. Maybe use a spreadsheet or something easier like MoneyTracker.
  3. Subtract your total expenses from your net income (that is, your income after tax).

Here are some examples of how that might look, based on a monthly income of R20,000, R30,000 or R40,000:

Example table

% of income










































If you can adjust your monthly expenses to fit the percentages in the table, you should end up with 15% of your income left over to save and invest.

Some of the best ways to save or invest surplus income

Once you’ve determined your surplus income, consider these short-term saving strategies:

  • High-interest savings accounts These accounts offer higher interest rates than regular savings accounts do and can help your money grow faster.
  • Fixed deposits These lock in your funds for a specific period and earn a guaranteed interest rate, making them a secure and predictable investment.
  • Money market accounts These accounts provide higher interest rates than traditional savings accounts do while still allowing some access to your funds.
  • Paying off high-interest debt If you have outstanding high-interest loans or credit card debt, consider using your surplus income to pay it off before saving for anything else. This will save you money in interest payments and improve your financial health.

Why do you need an emergency fund?

Some people wonder why they need to create an emergency fund first when they start building a savings and investment portfolio. The answer lies in the name – an emergency fund is meant to cover financial emergencies, like losing your job or unexpected medical bills. If you have savings to cover these sudden expenses, you won’t have to dip into any of your investments and reduce their potential for growth.


Milestones like a 21st birthday or 25th wedding anniversary deserve extra celebration


Your emergency fund should amount to 3 to 6 times your monthly income, and the money should be available to you immediately. However, an emergency fund differs from short-term savings because you intend to keep that money saved indefinitely until you need it – it could be years before you need money for unexpected, urgent expenses. Short-term savings, in contrast, usually have a goal that you want to achieve within 2 years – so from the start, you intend to use that money when you reach your goal.


Short-term savings goals

Short-term savings goals are financial objectives that can be achieved within 2 years or so. These goals typically focus on planned expenses and lifestyle upgrades. Your specific savings needs might include:

  • Holidays Saving for a holiday means you can take a break to recharge without incurring debt. Holidays can improve mental well-being, strengthen relationships and increase productivity when you return to work.

  • Weddings Saving in advance to cover wedding expenses allows you to avoid starting married life with another loan to pay off.

  • Milestone celebrations Birthdays and anniversaries come around every year, but milestones like a 21st birthday or 25th wedding anniversary deserve extra celebration. Plan your short-term savings properly, and you can spoil yourself and your loved ones without straining your finances.

  • Sport and lifestyle enhancers Saving for lifestyle upgrades like recreational vehicles, boats or sporting equipment allows you to enjoy your hobbies without adding more debt that could pile up and endanger your financial stability.

  • Solar power and water storage systems Ongoing challenges like load-shedding and water delivery issues are causing many South Africans to investigate alternative energy sources and water storage solutions. These upgrades can improve your quality of life and potentially save you money in the long run, but they can be costly. Everyone’s circumstances are different, and you may decide that your need for solar power or safe water is urgent enough to take out a loan to buy a system, in which case you have several affordable options.

By embracing the lessons from the marshmallow test, you can develop the discipline and patience required to achieve your short-term savings goals. Understanding your surplus income and adopting effective saving strategies can significantly improve your financial health.

Learn more with Nedbank’s Essential Guide to Money Management. As your trusted financial partner, Nedbank is here to help you navigate the world of personal finance and guide you towards a more secure financial future. Explore our Private Clients offering.