After a very emotional response to the Cappuccino diet article, we decided to run a survey on what people would be prepared to give up in order to save.
Our survey showed that the majority of people would be prepared to give up their daily caffeine fix, but apparently beauty treatments and golf are considered more of a necessity than a luxury. Just more than 8% of the voters would not be prepared to give up their luxuries at all.
Personally, I would not give up my weekly date night with my husband as I am sure it works out cheaper than a divorce. When finances are tight we may just meet for a drink, but for me it is closer to a necessity than luxury. But for some people their coffee is their necessity.
After the cappuccino article I had emails and calls from people to say “do not touch my cappuccino” (possibly they were yet to have their caffeine fix, which is why they were particularly grumpy). Under our comments section one reader added that if you only lived on bread and water then you would be able to save even more — so where do you draw the line?
That is a good question. When do you take a stand on your luxuries as something you worked hard for and deserve, and when do you have to cut back? I guess the answer is “when you are saving enough”.
It really comes down to having a financial plan. If you know how much you need to be saving every month and you are on track, then once those debit orders into your savings have left your account, you are free to blow the lot.
Alternatively, you may have a short-term goal like an overseas trip that you want to save for. Then you go through your budget and see where you can cut back. Eating out less often or skipping the daily cappuccino would be worth it.
The problem is that most of us don’t save enough, which is why we avoid doing the financial plan in the first place. We will have to face the reality that some luxuries will have to go. But suddenly finding that you have to cut out all those things that make the week liveable is inhumane. So we need to have a balanced approach.
Go through the luxuries and separate those that are an absolute must and those that you could live without or cut back on. Try at least to have halved the gap in your savings requirements without living like a pauper.
The next step is to use your salary increases to boost your savings. Set a five-year goal that increases your savings each year by 2% of your salary, using a small portion of your annual salary increase.
As an example:
- You earn R15 000, you receive a 7% increase giving you an extra R1 050
.
- Your before-tax salary would now be R16 050
.
- 2% of your salary is R321 — start a debit order for this amount (you will still have R729 to spend after the increase).
- Commit to increasing that debit order every year by a further 2% of your salary i.e.: next year a 7% increase would bring your salary to R17 173. Add 2% of that (R343) to your existing debit order.
- Within five years you will be saving 10% of your salary without having to cut back on your spending.
Another way to achieve this would be to commit to saving an amount that increases by a few percent ahead of inflation each year, for example, a 10% escalation on your monthly savings plan.
This is the concept behind the Save More Tomorrow plan described in the book Nudge. Authors Richard Thaler and Cass Sustein introduced this scheme in Australia, and after four years 78% of people remained committed to the plan. The average investor had increased their level of savings from 3,5% to 13,6% within those four years.
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