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How to cut spending and save money

Savings in SA have reached the lowest level since 1990.

Saving money is deemed important for several reasons, especially for South Africans who are big on spending. According to the Investec GIBS Savings Index, savings have reached the lowest level since 1990 and have declined for eight consecutive years.

For a developing economy like South Africa, saving is very important as it contributes to the growth of the economy, it increases investment and increases incomes, which in turn leads to increased savings. High levels of growth also bring in savings from other countries in the form of foreign investment which contributes to a virtuous cycle of savings and growth.

South Africa, however, finds itself faced with the challenge of poor levels of savings. For an economy that experiences high levels of unemployment and poverty, why are we not able to improve on our savings levels?

Below are tips on how to cut spending and save money.

Sort out your debt

The first thing to do before you start saving would be to sort out your debt. Those monthly debt payments are one of the biggest challenges when it comes to saving as it robs you of your income. So, to get rid of your debt, try using the debt snowball method where you pay off your debts in a specific order – from the smallest amounts to the largest amounts. It might sound impossible at first, but once your debt is all paid up, you can move forward and focus on your saving goals.

Grocery shopping preparation

It’s so easy to get caught up when doing grocery shopping and end up overspending on things you didn’t even plan on purchasing in the first place. You would have spent more than what you initially budgeted for leaving you with less money for your other monthly expenses. To avoid overspending, plan your meals a week beforehand. When doing this, check what’s left in your pantry as you might find an extra tin of coffee or baked beans that you can tick off your list. This prevents unnecessary spending. Another thing to do is to stick to what’s on your list, especially when walking down that luxury isle with all your favorite chocolates. Temptation is the biggest enemy as you end up buying things you do not need but want instead.

Do it yourself (DIY)

It’s shocking to see how much money we spend on things we could do ourselves. Before heading to the store, try doing it yourself. If by any chance, you can’t seem to hit the nail on the head, try asking a friend or neighbor for help. If you are in need of tools or materials, try borrowing from your neighbor or friend before heading to the store and spending unnecessarily.

Create a 50/30/20 budget

A smart way to manage your money would be to follow a budget, which means prioritising your spending by allocating portions of your income to your monthly expenses. This approach is where 50% of your income is allocated to necessities (needs), 30% is devoted to wants and 20% to savings and other debt payments. If by any chance, you exceed one of your allocations, try making some adjustments elsewhere.

Record all expenses

In order to save money, you need to know how much you spend. Keep track of all expenses whether it be spending on food, monthly payments or household items. Go through your bank statements to ensure that you’ve included everything. Make sure to keep receipts as well. Once you have an estimate of how much you spend a month, only then can you decide on how much to allocate towards savings.

Compare insurance

Insurance is something every working individual should have, whether it be life, health or travel insurance. Don’t just renew your insurance every year. Every six months to a year, enquire and look for better rates with different companies. Ask for quotes to get a better idea of what you’re being offered. Make sure you are getting the best deals for the least amount of money.

Pay with cash

Studies show that most people tend to spend more when using their credit card because it doesn’t make them feel like they’re overspending. When you carry cash, you will stick to spending what you have. Once this becomes a habit, you will start planning your expenses beforehand and carry just enough for your needs leaving no room for excessive spending.

Purchase off-season

Making off-season purchases can save you a lot of money. Items are usually cheaper when it is sold during the off-season. For example, if you need outdoor winter gear, purchase it at the end of spring or in summer. If summer is approaching and you’re in need of swimwear, purchase it in winter or the beginning of spring.

Invest in a retirement fund

Studies show that only 10% of South Africans save enough for retirement and less than 10% of savers accumulate enough to retire comfortably. The best way to save for retirement is to invest in a retirement fund such as a retirement annuity, pension fund or preservation fund. Saving early for retirement results in reduced income taxes, more financial freedom when you retire, and compound interest being your best friend.

The recent surge in prices of basic goods like food and petrol has left many households with little to no disposable income for savings. However, it is of utmost importance for South Africans to make saving a priority. While we are known for our spending habits, we could use the advice provided to spend more wisely.

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Michael Haldane

Global & Local The Investment Experts

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