With July being dubbed Savings Month, Mapalo Makhu looks at why it is important to save and what your options are
WHAT ARE SAVINGS AND WHY ARE THEY IMPORTANT?
Savings are money set aside for future consumption. Because we do not know what the future holds, savings help provide financial security.
“Saving is not necessarily dependent on income, but rather on willpower and discipline,” says Gerald Mwandiambira, acting chief executive of the SA Savings Institute (Sasi)
SOME WAYS TO SAVE MONEY
Pay yourself first: Paying yourself first is undoubtedly one of the best and quickest ways to save money. Paying yourself first is saving money before you pay any of your expenses. It is ensuring that you save before you spend, which can have a massive impact on your financial ability to spend less, save more and reach your goals faster.
Avoid lifestyle creep: Lifestyle creep is the process of improving your lifestyle whenever you have more money available – what was once a luxury suddenly becomes a necessity.
With lifestyle creep, you get a raise, spend more, live from paycheck to paycheck, work harder and continue the circle.
You make more money, but your financial situation seems to worsen. In fact, the more you keep improving your lifestyle without increasing your savings and investments, you are actually going backwards. Your friends and family may think that you have improved your financial situation because of the expensive cars and house when, in fact, you are drowning in debt.
An antidote to lifestyle creep is paying yourself first and keeping your expenses under control as you make more money.
Coronation personal investment specialist Kim Deane says: “We know it’s hard to be the odd one out, but take a moment to consider the joy of saving your hard-earned money for something really special, such as an experience or future goal that you’ve been dreaming about instead. By investing, you give your money the ability to grow.”
Don’t fall for spending disguised as saving: We constantly see messages telling us how we can “save” if we buy something today. It’s easy for us to fall prey to spending money on things we don’t really need out of impulse. When you are lured into buying unnecessary items the unseen truth is that you are not saving, you are simply spending money you did not plan to spend.
Saving, the ultimate joy of missing out: We are constantly bombarded with advertising messages telling us how we should be buying the latest and greatest items or experiences. So it’s really not difficult to fall into the trap of spending money on stuff that brings that instant feeling of elation. However, if we were really honest with ourselves, taking some of these “deals” may not have been the wisest decisions we’ve ever made.
This fear of missing out (Fomo) can lure you into overspending on things you most likely don’t need. Consistently succumbing to Fomo can come at the cost of your future financial wellbeing. The perfect antidote is to embrace Jomo by foregoing overspending today and investing your money instead.
Budget Insurance and Sasi offer the following advice for saving money:
- The first step is to draw up a budget. List your fixed expenditures and other monthly expenses and tally these up against your income. If your expenses are more than your income, you need to begin planning how you are going to reduce them. If you do have some money left over every month, but believe you should be saving more, draw up a budget to stick to and gain control of your expenditure.
- Some areas are easier to trim down on so concentrate on them first. Remember, even the smallest adjustments can make a meaningful difference over the long term.
- Once you have trimmed down your expenses, you can start channelling the extra money you have into paying off your debts faster, starting with those with the highest interest rates first.
- Make sure your budget has a goal, whether it’s to pay off your credit card debt or save money for a family holiday. Working towards a goal provides direction, makes it more fun and delivers a sense of accomplishment when the goal is finally achieved.
- Be realistic. If you set too lofty a goal and reaching it means deprivation on all fronts, the likelihood of you sticking to your budget is minimal.
- Be honest about your debt obligations and your expenses so that you have a clear and realistic picture of your financial situation. Communicate this with everyone in the family so that they understand the limitations within which they must live. This will prevent any feelings of resentment when they are refused money for something they want to do or buy.
- Deliver on your promises and offer rewards. If the goal was to save enough money to go on a holiday, then you must deliver on your promise when that goal is reached.