How to achieve your New Year's resolution to save.
South Africans have been branded the worst savers in the world and local economists have
warned that if the slow economic growth experienced in 2017 persists, it will be even harder to
save going forward. The lack of savings compels many South Africans to turn to debt to fund even
negligible financial emergencies.
Many people do not save because they do not see where they can free up cash in their constrained budgets. And those who have some contractual savings in place rarely increase their contributions beyond the annual increases mandated by their product providers.
Contributing just 5% more to your savings vehicle can help you reach your goal faster. Similarly, paying 5% more than your minimum monthly instalment can reduce your debt repayment period substantially.
Sanlam's calculations show that if a person earning R25 000 p.m. contributes 15% a month towards their employer-sponsored retirement fund, their monthly savings would be R3 750. If they saved this amount for 40 years, increasing by inflation, they could get 66% of their pre-retirement income when they retire. If they saved just 5%, or R188, extra per month, they could get 69% of their pre-retirement income. But if they also increased their contribution yearly by 1% more than inflation, their retirement income could increase to 80%, assuming an inflation rate of 6% and an investment return of 9% p.a. after fees.
Saving or putting more money towards monthly debt repayment is quite possible, even if you live pay cheque to pay cheque.
The trick is to break the hand-to-mouth pattern. A strategy of saving whatever is left after spending is unlikely to succeed or get you out of the pay cheque to pay cheque scenario. You need to do the reverse of that.
Here are tips from Sanlam to help you start saving even with a constrained budget:
- Pay yourself first: Put money away for saving as soon as you receive your salary - automatically deducting this from your salary is the best way to do it.
- Increase your debt repayment debit order: Don't try to pay extra only if there is money left after spending. Let your creditors deduct the extra repayments as soon as you get paid.
- Save towards a goal: Whether it is a deposit on a house, your children's education or a comfortable retirement, it is much easier to save if the savings goal is real and important to you, rather than vaguely saving because "everyone needs to save".
- Reassess your debt: Try to stick to good debt (e.g. mortgage bond, studies) and use cash for other expenses instead of using credit or store cards. You pay high interest on short-term debt, so make it a priority to settle it promptly. Once that is done, save the money that used to go towards debt repayment.
- Keep a lid on non-essential expenses: Start recording your expenditure on non-essential items. Decide which of these you are willing to give up. Also try cheaper alternatives for activities you engage in quite frequently.