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Top tips to save yourself by saving your money

16 August 2021 Momentum Multiply

Megan Harrison, Executive Head of Transactional Banking at Multiply Money, is here to help you save towards your future with some basic savings tips.

In an era of economic uncertainty where unemployment is at its highest levels ever recorded, the only way we’re going to save ourselves is by saving our money. According to Statistics South Africa, the household savings rate in the country decreased to 0,50% in the fourth quarter of 2020 from 0,70% in the third quarter of 2020.

The Momentum/Unisa 2020 Household Financial Wellness Insights report found that because the value of households’ savings and investments aren’t growing and their outstanding debts are increasing, the real value of their net wealth declined by an estimated R76 billion over the two-year period. With increased economic instability and a decreasing rate of saving, Harrison says this situation requires immediate action.

“There is an unfortunate lack of access to financial guidance among South Africans, and it’s therefore important to get the right information out there and change the savings narrative,” says Harrison.

Harrison provides some tips to help you save your hard-earned money, which will help to create the buffer you need to navigate an unpredictable future.

Start with a budget

Make savings part of your budget. When it is included in your financial plan, you’ll have a roadmap for where you’re headed, and you’ll be more likely to stick to it. Here you can set out what you need to save to achieve your long-, medium- and short-term goals.

Consider your short- and long-term savings goals

Harrison says the first savings account you need to look at is your emergency fund, which is a short-term savings solution. This is the place where should something happen, you have quick access to your cash. Put an amount away every month so that you don’t have to borrow money in case of an emergency.

“A simple money-market or call account should be sufficient as an emergency fund,” says Harrison. “It is accessible and takes advantage of compound interest. The main goal here is to avoid borrowing to cover emergencies.”

When it comes to solidifying your emergency fund savings goals, Harrison provides a simple formula to consider. If you consider the likely emergencies you may encounter, replacing household appliances is probably the most common one. She advises you to consider what it would cost to replace your most expensive appliance and start with that as a savings goal. “Once you have saved the value of your most expensive appliance, then you move onto the next most expensive appliance and add that as your next savings milestone,” advises Harrison.

Medium-term savings is something that too many South Africans tend to overlook. This is why Harrison advises having a five-year goal. “Establish a goal. It could be buying a new car or paying a deposit on a property. These are good medium-term savings goals you can work towards and achieve with conscious spending and discipline.”

For long-term savings, the effect of compound growth plays a powerful role. Compounding is when you start earning growth on the growth of the money you invest. Retirement planning hinges on this idea that your money will make more money for you at the end of the day through the principle of compounding. One rule of thumb is that you need to save at least 15% to 20% of your salary before tax for at least 25 years to maintain your current lifestyle after you have retired. This, however, depends on your individual situation and where you are in your life journey. Talking to a financial adviser can help you calculate more accurately how much you’ll need and help you set realistic goals and an equally realistic plan to get there.

Bad debt is not good

Debt can be good – and it can be bad. Good debt is the kind of debt where your money goes into something that can help build your wealth or increase your income like student loans, home loans or starting a business, while bad debt refers to that which is eating into your income, creating a debt cycle.

If you are overwhelmed by bad debt, Harrison advises that you take the right steps towards managing your debt more effectively. “Start with a list or spreadsheet that highlights exactly what you owe so you can keep track. Then you need to prioritise which ones you tackle first – generally the one with the highest interest rate.”

Make the most of your rewards programmes

If you’re part of one, these are generally set up to use cashbacks and discounts, as is the case with Momentum Multiply, to help you save your money and stretch your rands. If you look around you, Harrison says you will encounter numerous rewards programmes – some that you perhaps didn’t even know you had access to. If you use these to your advantage, you can really take your savings further.

“If you start to work towards following these steps, you’re well on your way to good financial health. It comes down to making small, everyday decisions that will ultimately enable you to spend smartly and save more.

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