The COVID-19 pandemic has resulted in slow economic growth during 2020, and while it may be tough for many of us to save for a rainy day, a little effort in this regard can go a long way.
Saving just 5% more in your chosen savings vehicle can help you reach your goal faster. Similarly, paying just 5% more than your minimum monthly installment on a vehicle or a bond can reduce your debt repayment period substantially. Even if you live from pay-cheque to pay-cheque, it’s critical to try to break the pattern in order to save or put more money towards monthly debt repayment.
The habit of saving whatever is left after spending is unlikely to show success or get you out of the hand-to-mouth scenario. You need to do the reverse of that.
Here are some tips to help you start saving in January ̶ 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. If you take this approach, you’ll always find something else to spend your money on. Instead, let your creditors deduct the extra repayment 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 to vaguely save 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. Remember that short-term debt carries high interest, 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.
Sanlam is a Licensed Financial Services Provider.