Here is what you need to do to save

by - July 28, 2016

The other day I mentioned to my friends that July is National Savings Month. One of them said to me, "how can we save when we are living from paycheck to paycheck?"

Then I thought to myself, "that's a good question to ask the experts about?"

So I asked Danelle van Heerde, Head: Advice Processes and Tools, Sanlam Personal Finance and Odetta Sekoko, Financial Adviser at Liberty to help me out. They showed me a number of things that we need to look at to be able to progress.

Danelle said, "If your income is the same amount every month, you are living from paycheck to paycheck. It's how you manage your money that makes the difference at the end of the month."

To be honest,  I never thought of living paycheck to paycheck that way.  I've always defined it the textbook way i.e. living off exactly what you earn with little or no savings or being unable to meet your financial obligations each month.

Danelle's definitions is more positive.  To me it means there is nothing wrong with living from paycheck to paycheck as long as you know how to handle your finances well.

Ok so now that we are feeling positive about our 'paychecks', what's next?

Odetta said we must "first differentiate between our needs and wants. Once we've established the difference, then we will have an indication of items we usually spend our money on unnecessarily."

And she is right on the money. I have seen my own spending spiraling out of control because I didn't differentiate between my wants and needs while I was at the store. I got carried away and ended up buying sweets and chips, when all I needed was milk.

Odetta also encourages parents to involve their kids in family finances. She says this will will help them establish what they “need” from what they “want". This will also encourage them to be responsible at a very early age and teach them accountability."

As parents, too often, out of our own anxiety about money, we shame children when they “want” things. Shame will only make your child less capable of making the right decisions. The best way as Odetta pointed out is to empower them with knowledge.

Now that we've tapped into our behaviour, what do we do?

Danelle says we need to "create a realistic budget". She adds: "make allowance for savings in your budget, but also for those things that give you joy. Be aware of what you spend your money on – it is easy to spend a lot on little things you cannot even recall at the end of the month. Rather use that money for a real treat. And always make a shopping list before you go to the shops – this will help you stick to items that is in your budget and not get distracted."

One thing I've personally learned about a realistic budget is that it doesn't include imaginary money that I think I am going to get in the near future. I did it once and it was a disaster.

Another issue that was highlighted to me that holds us back from saving is debt.

And this data from debt management firm, Debt Rescue supports this. South Africans aged between 31 and 45 owe 75% or more of their income to creditors.

That's staggering! And a real hindrance to our savings goals. I know this because I've been through this road and it's not pleasant.

So to avoid heaping more debt on yourself, Odetta suggests cutting back. "Some of the ways to cut back would be to eliminate debt such as credit cards and personal loan debts."

She also cautions that buying on credit will only put you in more debt due to interest payable on your credit debt. "Buying with cash on the other hand, encourages buying what is needed instead of what we just want to have."

So now that we have covered the basics, how do we save?

Danelle says the best method of saving is to save towards a goal that has meaning. "Whether it's the deposit on a house, your children’s education, being comfortable in retirement or a dream holiday, it is much easier to save if the savings goal is real and important to you, rather than just a vague “everyone needs to save.”

And if you are struggling with putting money into your savings every month, Danelle suggests that you put a debit order in place. "And every time you get an increase, make sure that you also increase your savings amount."

There are so many options that are available to help you save your money. Some bring in a nice interest and some don't. I suggest you do your homework.

My favourite, which is also a form of investing, is Satrix. You can set up a monthly debit order (R300)  or you can pay a lump sump (R1000). Personally, I prefer the monthly debit order option. It helps curb my spending. And if you ever need to withdraw your cash, it will take up to 7 days for you to receive the money in your bank account.

So there you go. Now that you know better you can do better concerning your finances.

Ultimately, we’re the ones who are in charge of everything. I hope this knowledge will help you to overcome some habits  that are not serving you best so that you can live your life to the fullest, responsibly.

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