This is it; this is the time you start saving, but the resolve to do so and the actual doing can be about as far as the east is from the west. So just how do you go about saving?
Basically it’s all about developing new financial habits; habits such as drawing monthly budgets, putting money away and delaying gratification. Here are 10 financial habits you can start developing in order to see your resolution through.
Start this when you start your first job, even if it’s just R100 a month. Explore retirement annuities and pension funds and find the one that offers you the best return on your investment. Remember the younger you are when you start, the more you will have when you retire. Let compound interest work for you!
The easiest way to do this is to set up debit orders. Most online banking sites also offer you the facility to arrange for regular payments to certain accounts which makes paying your bills that much simpler.
This simple system helps you keep track of how much money you have for spending. Put aside three amounts from your budget each payday – for example, one for fuel, one for groceries and one for entertainment – put the money in respective envelopes and use only that money for those expenses. The first advantage is that you won’t overspend, and the second is that you will quickly realise that if you regularly run out of money to soon, you will have to rework your budget.
The “See it, Want it, Buy it” attitude could very easily be the single biggest problem for most people. Impulse spending, such as spending on fast food because you don’t feel like cooking, online purchases you “just couldn’t resist” or “sale” items you probably won’t ever need, are sure-fire budget breakers. Rather set aside some money for impulse buying in your budget, use it thoughtfully and when it is finished, control the urge to take money from somewhere else. If you can’t afford something this month, rather buy it when you can afford it.
Financially successful people know what they spend their money on, from the snack bought on the run to the brand new flat screen TV. This knowledge helps them live well within their means. To start living within your means, keep a diary of all your expenses, big and small. At the end of the month, mark all your expense as either essential or non-essential, and then cut out the latter. Keep a similar diary the next month, and watch how your financial standing changes.
This doesn’t mean you need to know exactly what’s going on at the stock exchange, just about those financial indicators that affect you, such as the oil price, the repo rate, CPIX etc. Keeping an eye on these can help you mitigate their effect on your wallet. For example if you notice an increase in the price of oil, then petrol will be increasing and you can see where you can save to offset the extra cost.
Net worth is defined as “what is owned minus what is owed” and it is important that you grow your net worth through a combination of reducing your debt, increasing your savings and steadily increasing your income.
Top three habits you need to develop:
Make sure you pay yourself every month, make it the first payment that comes off your account by setting up a debit order facility. It is imperative that you have an emergency fund that can deal with anything from admission to hospital to paying the excess on your insurance. Don’t even think about it; just make sure it happens, each and every payday.
If you have a spouse or dependants, look at getting life insurance that takes care of their needs when you are no longer around – remember your income takes care of them. Draft a will and entrust the executorship to someone you trust. And last but not least, take out car and home insurance that offers you the best value for money. Remember to compare premiums versus excess, and research the benefits.
If you are in debt, put a strategy in place to get out of debt. List your debts in order from smallest to largest, then focus on the debt at the top, putting as much as you can into it, even if it’s just R100 a month extra. Once that amount is paid off, take the total amount you were paying and add it to the minimum payment of the next debt amount. This will help you decrease the interest on the debt and allow you to pay them off that much quicker.