The start of every year is an exciting time, allowing us to consider new opportunities and focus on the challenges ahead. But for many South Africans it is also a period of pain as consumers recover from the festive season’s spending spree.
Most of us were buying presents for friends and family, entertaining guests and perhaps even taking a short holiday away from home. This means that we spent more than we usually do, leaving many people indebted and with a very lean bank balance.
Fortunately there are ways of making your life easier by changing spending and saving habits. If we put as much effort into saving as we do in spending, we could all be well on our way to financial independence. Consider this: South Africans save just two cents for every R100 earned, which does not bode well for our finances.
Draw up a budget
Knowledge about planning, debt management and saving is the only solution to managing your money. It could help you escape the debt trap and the resulting poverty cycle, and could also offer you the means to deal with both short- and long-term emergencies such as car repairs or your child’s education. Knowing yourself, your habits and your attitude towards money is vital before drawing up a budget.
Add up all your household income, followed by a list of all expenses. Now deduct the expenses from your income to reveal the extent of your surplus or shortfall. If you have a shortfall, you will have to reduce expenses and maybe earn extra income too. A budget will also reflect monthly disposable income, allowing you to plan ahead.
Encourage your family to participate in this budgeting process. If you have children, it will teach them sensible spending habits from a young age and will help to establish a sense of financial independence that will serve them well into adulthood.
Pay off debts first
This is possibly the easiest way to save money, since you are also paying interest on the money you owe. If you have debts, such as a personal loan or store account, pay them off as a priority. The more you repay and the quicker you can settle these, the less interest you will be charged. This will improve your cash flow and allow you to save.
Interest can accumulate fast and consume your funds very easily. You could also consider taking out a personal loan to consolidate all your smaller debts and simplify your life. Regardless of your decision, you should try to maintain a clean credit record, because it will affect your future credit applications.
Salary earners could build a nest egg by saving small, regular amounts. The more money you save, the more money you will have and the greater the interest on your savings. You will also earn interest on the interest already earned, known as compound interest. (Over a working lifetime, the interest earned on savings will be more than the actual amounts deposited!)
It is not about how much you can save each month – the trick is simply getting started and staying focused.
Entering the banking system by opening your own savings account is the best way to manage your money, because it provides security and convenience. Choose an account that allows you to receive and make payments and cash withdrawals, or an account that allows you to take out personal loans, set up debit orders, transfer money to other accounts and benefit from a funeral plan.
Visit all the banks and compare the benefits of the various savings accounts offered. One bank, for example, encourages cashless transacting by charging zero transaction fees on all debit card purchases. This is much safer than carrying cash.
Clients can earn 10% interest a year on daily savings balances up to R10 000 — the best rate in the market.