How to kickstart your savings

You can kickstart your savings – in a time when there is very little to save – by finding something to save for, such as a holiday or a home of your own, rather than saving for a certain time.

While many of us battle to pay our expenses, it can seem quite daunting to think about saving and therefore the first challenge is to make it through the month spending less than you earn.

“We often hear people talking about short-term, medium-term or long-term savings, but as an individual or family, it may be more useful to think about what you save for, as this approach also helps you to work out how much you need to invest for each goal you are saving for,” says Shelley van der Westhuizen, head of financial well-being strategy and applied research at Alexforbes.

October is Financial Planning Month and this reminds us that we must have financial goals and work towards achieving them over time. Van der Westhuizen says you have to answer these three questions to determine how much you have to save:

• What do you want or need to save for? This is your goal.
• How much does it cost?
• How much time do you have until you need the money? If, for example, you have to save R100 000 for your child’s studies that will have to be paid in seven years, this is your time period.

Now that you know what your goals are and how long you have to save for each one, you have to decide how you will save. Which financial products will you use? How do you factor in expected investment returns? This can be quite overwhelming and this where a qualified financial adviser can help with a suitable financial plan that you can put into action.

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Some savings come first

While you can save for different goals at the same time, you also have to prioritise and manage your debt. Van der Westhuizen says if you worry about your debt or spend most of your money on debt repayments or if you have some overdue accounts, it is time to get help.

The Alexforbes financial courage survey showed that over 80% of respondents said they spend most of their time worrying while dealing with their finances. Almost 75% attribute their financial stress to debt worries. This means that money worries caused by over-indebtedness often interfere with work and quality of life.

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Emergency savings

One of the ways to avoid becoming over-indebted is to prioritise emergency savings, Van der Westhuizen says. “Emergency savings is an important part of achieving financial goals because, even if you are not over-indebted, it means that any other savings you have can be used for their intended purpose.”

Once you considered your expenses, including your debt and have built up your emergency savings buffer against unexpected things going wrong, it is time to consider your other savings goals.

One of your financial goals should be to have enough to live on one day when you cannot work any longer. When Alexforbes asked people if they knew how much of their salary they needed to save to have enough to live on when they got older, 94% did not know.

“Most people would be surprised to find out that they need to save around 17% of their income for 40 years and always keep their retirement savings invested. In this way, they can enjoy a pension that is about three-quarters of the salary they were earning just before they stopped working.”

How much you have to save for retirement and other goals is a very important personal question that needs an answer and depends on your circumstances.

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Be realistic

By the beginning of 2021, the number of people contributing regularly to their own savings had fallen by 28% and the average savings amount of those still contributing regularly had decreased by 23% according to Deloitte’s The State of the South African Consumer Tracker.

“If you are struggling to make good progress towards your financial goals now, you are not alone. It may be a good idea to invest your energy in what you can manage while times are tough, such as reducing your spending wherever possible or growing your skills so that you can earn more.”

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Ending financial anxiety

According to The State of the South African Consumer, South African consumers are the fourth most financially anxious people in the world. Over 33% spend more than they can afford. Combined with taking more control of our finances by following some of these suggestions, spending less on nice-to-have items may be a good way to reduce any financial anxiety you might have and have more financial success ahead.

Van der Westhuizen encourages consumers to use one of the tools available to determine how much you have to save for a goal every month, such as the Alexforbes My Retirement Picture.