Five rules of successful saving
When it comes to saving, there’s no such thing as an “all or nothing” approach. Saving doesn’t have to be extreme and the changes don’t have to happen overnight. However, follow these five rules for creating a successful and realistic money saving plan, and saving could quickly become a way of life for you.
The key to developing a successful saving plan is to visualise where you want to be in a specified period and take the necessary steps to get there. One of the most important things to do is to conduct some research to identify the best savings account for your needs, taking into account fees and interest earned.
Below, we’ve put together five rules that answer the question: How to save money?
1. Start with the end goal in mind
Motive is the difference between being interested and being committed to seeing something through. If you have a big enough ‘why’, then figuring out how to save money won’t be a problem. Write your goals down, tell people about them and be fully committed!
2. Understand your cash flow
Put some effort into understanding your spending patterns and habits. Checking in on your spending every week as opposed to a monthly review, makes it easier to find traces of overspending.
Spending less inspires more savings. Find ways that you can get the same products and services for less. Try renegotiating the terms with your insurance company, cellphone provider, and even big-ticket items such as monthly rent. It may seem like a far-fetched idea, but you won’t really know the outcome if you don’t ask.
Don’t forget to analyse the rest of your recurring expenses. Do you really need that membership to that high-end gym when you only go a few times a month? Could working out at home help save you money?
You don’t have to give up all the things that make you happy. Sometimes you just have to find a more cost-effective way to enjoy the same activities.
3. Pay yourself first
According to UCLA instructor Samuel Rad, “this is the idea of always cutting out a part of your paycheck and putting it aside before you spend money on other things.” Create automatic debits, taking the money out of the account in which your salary is deposited and moving it to your selected savings or investment account.
In his book, The Richest Man in Babylon, George S. Clason outlines the 10% rule – save a minimum of 10% of your income for your future needs. Consider it “Me Tax”, an essential investment in your future. Most people will automate their bond payments to ensure they aren’t late on those, but only a small number of them will do the same when it comes to their savings.
4. Handle your debt
Get a handle on all the details regarding your debt situation. From your student loans to the balance on your car or house loan and outstanding credit card debt, make sure you understand how much you owe and at what interest rate. Next, see how you can minimise the intensity of that debt.
You can go about your debt situation using three basic strategies; pay-off the high-interest-rate debts first or begin with the smaller balances (snowball method); or consolidate your debt into one loan. The idea here is to feel motivated and powerful and to acquire the momentum to fight on when you’re done paying off a debt.
African Bank’s Consolidation Loan enables you to combine up to five loans to the value of R250 000. The benefit is that your debt will be easier to manage and you could enjoy a lower interest rate.
5. Avoid lifestyle inflation
Lifestyle inflation is when your standard of living increases with your income. Although a gradual process, its effects can be just as long-lasting and damaging; buying a bigger house or car than you need, increasing your credit card balance, financing more items, eating out more… you name it.
The most effective way to do away with lifestyle inflation is to ensure that as you start earning more, the amount you save increases too. For example, if you get a 5% salary increase, be sure that the amount you save every month increases by 5% too.