Some effective saving and budgeting hacks this Savings month
July is savings month, an initiative introduced by the South African Savings Institute (SASI) to reinforce positive financial behavior by encouraging consumers to live within their means. South Africans are notoriously known for being bad savers, however our consumers’ issues with savings are complex and deep-seated. To effectively address them then, one must recognize their cultural, behavioral, and perhaps most importantly, economic causes. In 2019, before anyone knew anything about Covid-19, SASI reported that household debt was staggeringly high at 71.9%. This meant that for every rand earned, nearly three-quarters went towards debt, leaving households with very little left for living expenses, and even less for saving.
The situation was exacerbated by the Covid 19 pandemic, as, in a Business Tech survey conducted earlier this year among 2702 readers, 76% of respondents indicated that they save less than 15% of their salary, while 35% indicated that they don’t save any money at all. Also, Investec GIBS Savings Index data show that savings levels are not only at their lowest since 1990 but have been on a decline for eight years.
Let us unpack some of the unhealthy spending habits that prevent us from saving, so we can devise some methods for addressing or preventing them. Whether it be the instant gratification that shopping might present, or the rewarding sense of achievement when you can afford to spoil yourself, spending money is a very emotional experience. This is why all the many emotions we go through on a daily basis often reveal themselves in our money habits.
In this context then, the 30-day rule for saving which encourages consumers to pause their impulse purchases for 30 days is perfect for helping consumers save. How the rule works is, whenever you are considering making an impulse purchase, pause and think about it for 30 days before proceeding with the purchase. After 30 days, if you still want to buy the item, feel free to do so.
Another way of implementing the 30-day rule is by transferring your savings into a locked savings account that prevents you from withdrawing from it without penalty for 30 days. Most banks can help you implement this method by offering a 32-day notice savings account which enforces a 32-day notice period for any withdrawals from that account.
Incorporate your 30-day savings as a part of your finances by determining what you need and what you want, opening a savings account, and creating an entertainment fund. This strategy can be used to amplify your budget, help control your spending, and put your savings back on track. It can weave into your overall financial plan and help control the urge to impulse buy.
Saving is impossible to achieve if you do not have a comprehensive budget in place that clearly maps out your financial goals. While many people understand the importance of budgeting, most have found that figuring out an effective budgeting custom and sticking to it is often easier said than done. Nevertheless, budgeting doesn’t need to be complicated, nor should it take hours out of your day. In fact, the best ways to budget are often the simplest.
The 50/30/20 budgeting rule is the best example of this. The strategy operates as an easy guideline for planning your budget by allocating 50% of your net income to needs like rent, groceries, and utilities; 30% to wants such as hobbies, vacations and dining out; and 20% to financial goals (that is, savings and debt payments). The reason this strategy works is because an integral part of succeeding at properly executing your budget is to understand your priorities and budget according to these.
Practically, how the 50/30/20 budgeting rule works, is you take your net income and multiply it by 0.5 and the result will be the amount that you should spend on needs, multiply your net income again by 0.3 to get the amount to be spent on wants, and then finally by 0.2 for financial goals. The next step is to make a list of your monthly expenses and tally them according to the category each one falls into and check whether you’re spending the correct amount in accordance with your 50/30/20 rule. Remember to track your expenses each month, and make changes where needed in order to stick to your spending thresholds going forward.
Other budgeting methods that could work for you include, firstly, the 80/20 rule which sets aside 80% of your income to needs, wants, and debts and then 20% is then strictly designated for savings. The second alternative algorithm is the 70/20/10 rule, which says 70% goes to living expenses, 20% to debt payments, and 10% to savings.
Whichever way you choose to do it, budgeting is a great way of taking control of your finances. When you budget, you know exactly where all your money goes, where you can make adjustments to save when you need to, and also how to effectively save and leave enough money for unexpected expenses and emergencies.
Founder and Debt Counsellor at National Debt Advisors Sebastien Alexanderson said budgeting wisely and saving money is a very important part of any healthy personal finance management strategy. Also, it is much easier to successfully implement these tactics if you develop them to suit your particular lifestyle. You can do this by assessing your financial situation and identifying where improvements can be made. Next, you can pick out a budgeting system that can best suit your financial circumstance. Finally, if you have overwhelming debt, seek help sooner rather than later, and address it while ensuring you keep your compulsive spending at bay. Essentially it is crucial to be clear on your financial goals and always remember to pay yourself first by setting aside your savings before allocating funds to anything else.
Alexanderson said creating a saving system that works for you can help you navigate tricky situations, meet financial obligations, and build wealth. “Saving money is vital. It provides financial security and freedom and secures you in a financial emergency. By saving money, you can avoid debt, which relieves stress. Implementing smart savings tools can help give our saving efforts more ease,” said Alexanderson.