There is always a reason to start saving you just need one that resonates with you. Deciding when to start saving could make a huge difference in your financial future. Savings are defined as a portion of income that is not spent on current expenditures and put aside for when its needed. It needs self-discipline but with focus it can soon become a habit. Here we look to provide an overview of the national savings problem in South Africa, incorporating the latest statistics. It also highlights the importance of saving, building up resilience through an emergency fund as well as a guideline on how you can start saving for your future.
Biggest Saving Mistakes
According to the World Bank Report 2014/2015, South Africans are the world's biggest borrowers. More than half of South African consumers are three months or more behind with their debts repayments. This makes it even more difficult to start saving. In an article in Fin24, Sam Beckbessinger author of a book meant to help adults navigate through handling their finances mentioned a few saving mistakes that South Africans do.
- Over-Insuring: Yes, insuring your assets may be beneficial too but you do not have to insure everything. The aim is to ensure the assets that have the potential of leading you to bankruptcy if lost.
- Not being afraid enough of debt. Some debt can be good if it provides an asset - i.e a bond but short term lending is never a good thing.
- Not understanding inflation: Inflation can reduce the value of your money. Understanding how market forces can influence the value of your assets and savings is the first step towards protecting yourself against potential adverse effects.
- Don’t time yourself nor the market: The old adage time in the market not timing the market holds true.
- Balance your debt and savings. If you have high interest debt then use your surplus money to pay down your debt. Then you can get started on building up that emergency fund.
According to Trade Economics the household saving rate decreased to -0.2% in the fourth quarter of 2019 from -0.10% in the third quarter of 2019.
"For every rand that one household in South Africa saves, another household is 'dis-saving' by buying on credit or spending on a credit, says Dr. Adriaan Saville, a professor in economics at the Gordon Institution of Business science. According to Dr. Adriaan Saville while there are many South African Households saving this is negated by the people who spend on credit cards, personal loans, overdrafts and other loans.
You can never predict what the future holds for you. Saving provides a financial safety net in the case of an emergency. Instead of having to take on debt to get you through you can access your emergency fund. There are many reasons to start an emergency fund:
- Help cover expenses you did not budget for.
- When you rely on one source of income an emergency fund can be a life-saver if that income dries up.
- Provides a buffer against irregular income. If you are a contract worker, freelancer, or starting your business emergency funds can help smooth the irregularity. If you are seasonal worker emergency funds are help during the off-season period.
- It provides peace of mind. Nothing is as comforting as being at peace about a financially secure future.
To save successfully you must have goals. When you understand why you are saving it gives you the motivation to carry on. Understand the difference between needs and wants and distinguish yours. Challenge yourself to prioritize and compromise.
Seven steps to start saving
- Record your Expenses: The first step to saving is to record your monthly expenses. Categorically organize them to see where you spend the most. If you are not sure of your monthly expenses, get your bank statements they will help you track your expenses.
- Draw up a budget: Compare your expenses to your income. Outline all the expenses you recorded in step one. Within your budget create a savings category.
- Find ways to cut your spending: If you see that you cannot fit a savings category in your budget you need to start cutting back on non- essentials. Look for expenses that you can compromise on or even just reduce the spending prices. For example, instead of buying lunch every day consider packing lunch at least 3 times a week.
- Set Savings goals: one of the best ways to start saving is to have goals. Deciding what you are saving for and the period in which you want to reach your goal. Distinguish between your short and long-term goals. Some examples of short-term goals include an emergency fund, vacation, and down payment for a car. Long-term goals include saving for retirement, tertiary education and down payment for a house.
- Decide on your priorities: Your goals have the biggest impact on how you save. Prioritize your goals. Differentiate on which is more important and when you wish to achieve it. Also decide how much you want to save. Focus on one goal, not everything will happen all at once.
- Open a Savings account: This is the tool where you will keep your savings. Meerkat offers an affordable savings plan that allows you to save from as little as R25 per month. This savings plan lets you start your savings, you save when it suits you and gives you tools to track your savings. You have access to your savings whenever you want them with no penalties.
- Start Small: Starting small allows you to gradually get comfortable with the habit of saving. Make little changes in the early stages of your saving percentage as you go.
Saving enough money to live a lifestyle that gives you a sense of freedom is the reason itself for saving. You can start from as little as R25 so start today.