Know why you’re saving.
Before starting any kind of savings plan, you need to have a very clear idea of why you’re saving. Is it a short-term goal like a holiday? A medium-term goal like a new car, or a deposit on a house? Or a long-term one, like retirement? Get a crystal-clear picture in your mind of what you’re saving for, and why it’s important, and then write that down somewhere you can see it easily (maybe even add in a picture or two). When it gets tough to stick to the plan, refer back to this for the inspiration you need to stay on track.
Pay yourself first.
This is the absolute cornerstone of saving, whether you’re earning well, or barely scraping by. Before you pay any bills or expenses, right after you’ve been paid, set aside the amount you want to save for the month, and put it away so that you can’t touch it. This might seem backwards, but if it’s not there for you to spend on your day-to-day living, it can’t be spent. If you leave your saving to the end of the month, after everything else has been paid, you’re almost certain to not have anything left to save (you know this only too well).
Don’t try to over-reach, or over-restrict yourself.
If you haven’t been in the habit of saving until now, it’s silly to suddenly try and put away half of what you make every month. Rather start small, get into the habit of saving, and build from there. A good place to start is to put away just 10% of your income – humans are amazingly adaptable animals, and can take a 10% variation in almost anything in our stride. Suddenly having 10% less to spend every month might seem like a scary thought, but you’ll adjust quicker than you know. Also, don’t give up on all the good things in life. If you’re being disciplined about putting money away, let yourself have that nice dinner, that night out with friends, or that treat. Just like with dieting, if you restrict yourself too much, you’ll start to resent the hard work you’re putting in, and fall off the wagon.
Review and negotiate your monthly expenses.
Phone up your insurance company, and work to negotiate your premium downwards (have an offer from a competitor to really back up your argument). If your cellphone still works fine, don’t automatically take the upgrade. You can haggle for a much cheaper version of your same contract if you keep your current handset. Look at any monthly contracts you’re not using (gyms are a very common example here), and cancel those that are being wasted. All of these will free up much needed spare cash.
If your monthly income varies, use percentages for how much you put away, not fixed amounts. If you can’t commit to a solid R1000 a month allocation to your investment or savings account, make it 10% of your income for the period.
Don’t buy on credit unnecessarily.
The interest and finance charges you pay every month are going into somebody else’s pockets, when they could be going into yours instead. While it may be difficult to buy a car or house without finance, for smaller purchases like food and clothing, rather pay cash. And if you don’t have the cash, you can’t afford it.
Look at loyalty plans.
Have a look at the loyalty and rewards plans from retailers, banks and other suppliers. The rewards that can be earned can be turned into vouchers, and these vouchers could be used to buy groceries and goods that you were going to buy anyway, saving you money. You can these take these savings that you’ve made, and put them into your monthly savings pot. Just be wary of loyalty plans that you have to pay extra for, and weigh up the costs against what you could realistically earn as rewards.
Research the best savings and investment returns available.
If you’re limited with how much you can put away every month, you’ll definitely want to maximise its growth potential. Compare offers from different banks and financial institutions, and be sure to also take costs into account when choosing which will give you the best return on your money.
Gareth Cotten (B.Comm Accounting and Honours in Taxation) is the founder of the Good Advice blog www.goodadvice.co.za and an entrepreneur with a strong financial background. His business endeavours include financial coaching and consulting, and he also teaches a number of UCT finance short courses offered through GetSmarter www.getsmarter.co.za.