With July being National Savings Month, South Africa’s generally poor savings culture is once again in the spotlight. Like many things, saving is something that gets better with practice. The more often you do it, the easier it becomes – and the greater the reward. In many instances, getting started is the greatest obstacle – and it’s the delay in taking that the first step that trips many people up.
The cost of living is expensive and it’s easy to make the excuse that you don’t earn enough to start saving. Finding excuses will, however, only serve to postpone your savings journey, so set aside the excuses and commit now to becoming a better saver. Here how:
Identify goals that motivate you
Retirement as a goal is often way too far into the future to motivate anyone to start saving. Instead, consider short- and medium-term goals that excite you and which will encourage you to start saving. Set realistic and achievable goals that are aligned with your lifestyle goals and passions, and start visualising what it would be like to achieve them.
Start small, but start now
Not many people have any wiggle room in their budgets. Don’t fall into the trap of believing you must start saving 10% or 15% of your income. For many people, this is completely unrealistic, especially under current economic circumstances. Don’t be ashamed to start saving a small amount every month as you can always increase this amount as and when your budget allows. Commit to an amount that you know you can currently afford and just get started.
Live within your means
It’s not what you earn that matters. You can only grow your wealth by spending less than you earn and consistently saving the rest. You cannot begin to save until you are living within your means, and the first step in achieving this is preparing a budget. It is generally easier to reduce your spending than it is to increase your income.
Draw up a valued-based budget
Draw up a budget that reflects your values and what is important to you. A values-based budget starts with determining your goals and priorities and then aligning your spending to match. For instance, if wearing branded clothing is not important to you, don’t make provision in your budget to buy overly expensive clothing because you feel pressured to ‘keep up with the Joneses’. If travel is important to you and you’re prepared to drive a smaller, less expensive car in order to be able to afford to travel, let your budget reflect that – and don’t feel pressured into buying more car than you need in order to meet expectations that others may have of you.
Be prepared to make sacrifices
Ensuring that you can live within your means will no doubt entail making sacrifices, so mentally prepare yourself for the possibility that you may need to make lifestyle changes in order to achieve your savings goals. Identify those areas of expenditure where you know you can cut back on – a process that may require you to think carefully about whether some ‘needs’ aren’t in fact ‘wants’.
Differentiate between spending and borrowing
Learn to understand the difference between spending your own money and borrowing from someone else to finance a purchase. For instance, if you buy a JBL speaker on credit, you are borrowing from a financial institution so that you can enjoy the use of the JBL speaker now. You will not fully own the JBL speaker until you have paid off the loan with the credit provider, with interest.
Pay off debt aggressively
Debt is a mantel that can burden you daily. Being overly indebted can be a dark place to be and a difficult place from which to escape. While you’re servicing expensive debt, such as credit card and retail debt, it is difficult to save because the interest you’re paying on your debt generally erodes any gains you are making on the other side.
Include a savings category into your budget
Paying off debt will allow you to redirect your debt re-payments towards building up your savings. Whatever amount you feel you can allocate towards your savings, be sure to record it as a line item in your monthly budget. ‘Paying yourself first’ means making sure that, after your basic living expenses have been covered, your savings are prioritised and not negotiable.
Use the right savings vehicles
If you’ve committed to regular saving, the next step is to ensure that your savings vehicle is fit for purpose. There is a multitude of savings vehicles from which to choose, all with different tax consequences, notice periods and regulations, and it is important to ensure that the savings vehicle aligns with your goals. For instance, a tax-free savings account may be an excellent vehicle to save for your child’s tertiary education, but would not necessarily be appropriate to house money intended to be used for your annual vacation.
Automate your savings
Once you’ve set your goals, allocated your savings and identified the most appropriate savings vehicles, automate your savings so that the money moves seamlessly from your bank account into your respective savings accounts. This will reduce the temptation of intercepting the money for other purposes, and will ensure that regular saving becomes a habit.
Record your expenses and track your spending
Tracking your expenditure and knowing exactly where your money goes is a surprisingly empowering exercise. Take time to go through your bank statement and make sure you can account for every cent you have spent. Be sure to identify costs such as parking, tips, auto-renewable subscriptions, on-the-go coffee and food takeaways which, on their own might appear benign, but cumulatively can be substantial in terms of your overall spend.
Use a cooling off method
When it comes to managing your expenditure, practice the art of delayed gratification by using a ‘cooling off’ period before making a purchase. If you’re contemplating buying something that is a ‘want’, commit to waiting a week – or whatever ‘cooling off’ period you believe will work for you. Often, just putting space and time between a desire to purchase and the act of purchasing can re-set your thinking and help you to re-prioritise your thoughts.
Build rewards and fun money into your budget
Spending money for pleasure is not wrong. In fact, one of the reasons we work hard is to ensure that we can use some of the money to pursue hobbies and activities that make us happy and make life meaningful. If you’ve developed a values-based budget, setting aside money for your hobbies and passions should be reflected in your budget – ensuring that you can pursue your interests guilt-free while at the same time ensuring that you stay within your spending limits.
Use an app that works for you
There are a number of excellent apps available that can help you track your expenditure, develop a budget, allocate your expenditure to align with your goals, map your expenses against your budget, and help you to save and invest. Apps such as 22seven, Moneysmart, MyMoney, MyFinancialLife, Mind, Good Budget and Chip are all excellent and are either free of charge or come at a nominal monthly fee.
Learn how to cook
If you regularly spend money eating out or buying takeaways, it is possible to become de-sensitised to just how expensive eating out can be. Many people also justify eating out or buying takeaways as a necessary expense on the basis that they don’t have time to cook or prepare a meal. Shopping for groceries online has never been easier, with most retailers offering a same-day or within the hour delivery service, making last-minute meal preparation so much easier. The cost difference between using leftover supper to make a chicken and mayonnaise sandwich for work versus paying R40 for a ready-made sandwich is significant, especially if multiplied daily over the course of each working week.
Work with your partner
If you’ve committed to a savings journey, ensure that you bring your partner or spouse alongside so that you can work together as a team. It’s extremely difficult to build wealth if both of you aren’t working towards the same set of goals, and with the same level of commitment. Creating wealth together will necessitate mutual sacrifice, communication and respect for each other’s goals.