People have a tendency to put off saving. Either there’s something that they feel is more important, or they think that retirement is too far into the future to worry about now. And some people tell themselves that they’ll wait until they’re (finally) earning more. But, no matter what the excuse or reasoning, putting off savings – whether it’s for retirement, an emergency fund or a deposit on a house – is just a bad idea. Start as early on your savings as you can, regardless of what you’re saving for. In this article, we give you some pointers to get you going.
To save a substantial amount, you’re going to have to practise some self-discipline. It would be easy to use disposable income to splurge on a new TV or take your partner to that restaurant he or she has been wanting to try, but don’t. Rather make saving a priority. Set saving goals so you have something to work towards. If you’re saving for a deposit on a house or putting away funds for your retirement, do something that will help you remember why it is that you are saving - hang up a picture of that house or the things you want to do when you retire.
Once you have set your financial goals (such as saving for a car or deposit on a house), you need to create a detailed, clear and pragmatic budget. Put it in a format that you can edit and adapt easily, because as your salary changes so will your budget. Start with your regular expenses (electricity, car payments, insurance, rent, etc,.), and then factor in extra costs that have a way of cropping up (such as contact lenses every three months). Then see what you have left. Think long and hard what you want to do with this ‘leftover’ money, because budgeting is really about prioritising. Again, put your goals first.
Once you have worked out your budget and have decided how much you want to save every month, set up an automated monthly transfer. With this in place, you won’t have to remember to make the monthly transfers to your savings, account and your money will start earning interest from the get-go. You’d also get used to seeing less money in your current account and get used to working with a limited budget.
After creating a budget and automating your savings, you need to start tracking your spending. This is challenging if done in the old fashioned pen and paper way, but in the digital age you don’t need to. You can use one of the many tracking apps out there – like 22seven – to make sure you stay on target with your savings and to identify areas in which you may still be overspending.
As Benjamin Franklin once said, “Beware of little expenses; a small leak will sink a great ship”. Look for places in your budget where you might be able to cut costs and save money, as these can really add up over time. Here are some areas to look at:
Most of us have had the unpleasant experience of opening an electricity bill and getting a fright at the cost – especially in winter. If you just put in place a few smart measures to cut down on electricity, you’d be surprised by how much you can save. Investing in solar power may be something to work towards in the future, but you could start today by replacing all your normal light bulbs with energy efficient light bulbs.
Water is another expense that can escalate quickly if you are not careful, and it’s another area where you can quite easily cut down on costs. You can find car wash products that don’t require water, you can water your garden with a watering can or you can forgo the bath for a quick shower. Think carefully and creatively about how you can save on water and you’ll see the difference on your monthly bill.
Grocery shopping is another area where you can cut back on spending. From planning your meals based on the food items you find on sale, to using accumulated loyalty points to get yourself a discount – there are many ways to make the weekly shop work for you (and your finances). It just takes a little bit of thought and some planning. Read our article on grocery shopping savings to learn how to get good deals.
Bank fees are one of those expenses that can easily go unnoticed. In fact, most people don’t even know how much they pay in bank fees every month and what that totals every year. To ensure that you aren’t among those people wasting hundreds of rands on bank fees every month, track your bank charges. Do some research on the fees charged by different banks and compare those to the fees charged by your bank. If you feel that you are paying too much, read our article on how to save on bank fees.
By being very focussed in your savings efforts early on, you can speed yourself towards your savings goal. To understand how this strategy works, read our article on compound interest.
Review your budget at the end of every month to track your progress. If you have any money left over after a particularly good month, don’t go out and buy yourself something nice as a reward. Rather, save your disposable income. The more you learn to save every extra little bit, the better your financial position will be in the long-run.
If you are serious about saving, you should open a bank account that promotes saving. The Old Mutual Money Account helps you cut costs with it’s low banking fees (the monthly admin fee is R4.50, swiping and online purchases are free, cash can be drawn at a till for R2.50 and debit orders cost R3), and it allows you to grow your money in a one of a kind unit trust savings account (with a average return rate of 7.1% per annum). To learn more about the Money Account’s linked accounts, you can visit our Money Account page.
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