Vernon WesselsMost people struggle to save due to poor financial literacy, often lacking essential money-management skills like budgeting. Others grapple with self-control, driven by the desire for immediate gratification.
But there are ways to fill that piggy bank – and it all starts with a plan. Here are five simple tips to get you going:
1. Set financial goals
Begin by considering your motivations for saving, both over the short term (one to three years) and long term (four or more years). In the short term, focus on goals like building an emergency fund that covers at least three months of living expenses (ideally more), planning a holiday, or saving for a car downpayment. Long-term goals might include a home deposit, renovation projects, your child’s education, or a retirement pot.
2. Make a budget you can follow
Including savings in your budget is crucial. But, first, you need to start by tracking all your expenses. All of them, from that handful of amagwinya (fat cakes or vetkoek) you bought on the side of the road for R1.50 each, to that suede cowboy jacket with tassels – the one that’s now hanging in your cupboard and slowly suffocating you with buyer’s remorse – that you bought for that one stupid party. Also, cover essentials, like food, petrol, rent/mortgage, insurance, etc.
If you can’t save as much as you’d like, cut back on non-essential expenses. Reduce spending on entertainment, eating out and ordering in. Find ways to save on car and household insurance (check out this blog here), downgrade your cellphone contract or data use, and look for cheaper gym options. Use simple shopping tips: set a weekly spending cap, never shop without a list, plan your meals a week ahead if you can, avoid malls if you’re tempted, and unsubscribe from marketing emails.
3. Avoid high-interest debt
Dave Ramsey, a prominent personal finance author and speaker in the US, advocates for a debt-free life, believing all forms of debt shackle you. For most of us, that’s rarely possible and some forms of debt, used responsibly, can help you achieve your financial goals.
A mortgage, for instance, can be good debt if it allows you to buy a property that increases in value. Similarly, a student loan that boosts your earning potential or a small business loan to expand your enterprise can be considered good debt.
On the other hand, credit card debt can quickly drain your finances, especially if it’s not paid on time, leading to a never-ending cycle. Buying clothes on credit means you couldn’t afford them initially. Payday loans, with their sky-high interest rates and fees, might offer quick relief but end up costing dearly, especially when falling due.
When considering a personal loan, it’s crucial to assess the interest rates and determine whether the loan falls into the “good” category (one that creates wealth) or the “bad” category (driven by consumption or greed). If you do have debt, start by paying off the smallest amount and work your way up. Don’t wait until it’s handed over to a debt collector; be proactive and try to negotiate a payment plan.
4. Save early
Harness the power of compound interest, which essentially means earning interest on your interest. This strategy can exponentially grow your savings. The earlier you start, the larger your final amount will be. For instance, saving R400 a month for 40 years at an average interest rate of 10% would see an investment of R192,000 become a final amount of R2,336,889.
5. Beat the (tax) system
We all despise the tax man, especially when our hard-earned cash is spent on bodyguards, luxury SUVs, or international jaunts while we drive on potholed roads and cower from criminals. However, you can boost your retirement savings by using a tax-free savings account. You won’t pay taxes on the interest, growth, capital or dividends. You can invest up to R36,000 per year and R500,000 over your lifetime.
Remember that circumstances change, so your financial plan must be dynamic, advises Robyn Laubscher, an advice and product specialist at PSG Wealth. Engaging with your financial adviser is crucial to ensure you stay aligned with your overall goals, achieving financial stability, maximising wealth and minimising stress.
“While it requires discipline and sometimes involves difficult choices, the benefits far outweigh the challenges,” she says. “By committing to your plan, you ensure that your financial decisions consistently align with your goals, paving the way to a secure and prosperous future.”
Sources: FAnews, Smart Assets, Capitec, Bank of America’s Better Money Habits, Nedbank, The Ramsey Show, The Conversation (RMIT University), Momentum Metropolitan, Absa, Alexforbes, Financial Planning Association.
Top image: Why you’re a terrible saver: Image generated by AI.
