August is women’s month and a good time to reflect on one’s saving journey, especially when less than 22% of South Africans have one week’s income as emergency savings. Saving is something that should be considered more of a need than a want.
However, with all the financial pressures on South Africans, the question is: where and how does one save for an emergency?
Here are some tips to start you on your savings journey:
- Look at your current spending
A quick way to free up cash to save is to look at your current spending. Using the Track My Spend feature under nav» Money on the FNB App can help you identify where you are spending your money.
Alternatively, keep track in a note book every time you spend money, be it in cash, card, or transfer, as well as what you are spending it on.
- Identify where you can reduce some spending
Once you have tracked your spending, the next step will be to identify areas where you can cut down and reduce your spending habits on that category. For example, from our stats we see that the average 18- to 30-year-old, who earns between R600,000 and R850,000 per year, spends R1882.52 on eating out and treats in a month.
If they reduce that by R882.52 per month, they have freed up cash that they can use towards saving. They are still having some fun eating out and treating themselves, but by being mindful, they can free up some cash to put towards their savings journey.
- Think about what goal you are saving for in the short term
The first thing that one needs to do is build up emergency savings on 1 – 3 months’ worth of income in an account that can be accessed within 7 days. That is the so-called rainy-day money and can be used in emergencies.
Contribute that freed-up cash of R882.52 into an interest-bearing savings account. If you do that every month for a period of 5 years, assuming a return of 5.5%, that could amount to R61,068.70 in 5 years.
- Now think about saving for the long-term
Once you have built up your emergency fund, what are some of the other goals that you are thinking of saving for? A house deposit? A local or international trip? Or even saving for your retirement?
If you add the freed-up cash of R882.52 monthly into an investment that targets CPI + 5%, that could amount to R 1,808,439.22 over a period of 30 years. Not bad for a hamburger.
- Automate your savings
When you have identified the freed-up cash, automate the transfer so that it leaves your account the day after your salary reaches it. That way, you have prioritized your savings over your spending, and your savings journey is well under way.
Very often, one uses the excuse that they don’t have enough money to save, but as one can see from the above example, just by making small tweaks to where they are spending money, they can free up some cash and start saving.
If you start your savings journey earlier, you can truly benefit from the effect of compound interest.