July is National Savings Month. Elizabeth Lwanga-Nanziri, Chief Operating Officer of the South African Savings Institute (SASI) tells us why saving is critical to your financial well-being
“Your debt repayments should never be higher than what you are saving.”
No job is forever
If you’re retrenched, you’ll still have recurring expenses to cover, such as electricity, school fees and home loan repayments. If you’ve managed to set aside a pot of money while you’re employed, you can at least cover these for a few months while you look for another job, or until you can start your own business. “It’s easy to forget that to get a job you will need money for transport to get yourself to interviews, to call prospective employers and to use the internet to get your CV out there,” says Lwanga-Nanziri. “Saving means you have something to fall back on without having to go further into debt.”
Do the numbers
Draw up a budget of your income and expenses and prioritise essentials first. Paying your monthly bills, putting food on the table and covering your debt repayments should come first. Cut back on luxuries and seek expert advice before selling anything to cover your expenses. “In tough times, you need to re-strategise and reprioritise,” says Lwanga-Nanziri.
Pay off your debt
There’s little point in saving if you’re paying high interest rates on your outstanding debt. Your debt repayments should never be higher than what you are saving. “Don’t fall into the trap of consolidating all your debt,” says Lwanga-Nanziri. “This simply means you’ll be paying off that shirt that you bought, over 20 years instead of over six months.” Pay off those debts with the highest repayment terms first, and then organise your debt in descending order. At all costs, avoid using your credit card to pay off your debt.
Make saving a habit
Even though it’s tempting not to save when higher interest rates have been eating into your pay packet each month, make an effort to keep a small amount of money aside each month. “You should be saving about 10-15% of your money each month,” says Lwanga-Nanziri. “But even if you put less than that away into a separate account, you’re getting into the habit of being disciplined about your earnings. When interest rates come down and the economy improves, you’ll be in the habit of being careful with your money.” She suggests signing a stop order that takes money out of your current account to a dedicated savings account each month. “You’re sending a message to yourself that that money does not belong to you,” says Lwanga-Nanziri.
In the short term, project-based saving is a good way to develop financial discipline. Each month, put money aside to build up towards covering the cost of a major “project”, a common practice under the stokvel schemes. This could be your children’s school fees for the year, or a holiday during the December break. “Once you’ve met your goal, you can concentrate on meeting longer-term targets, such as buying a car or house,” says Lwanga-Nanziri.
If you’ve lost your job, it’s clear that your revenue has taken a knock, while you still have to cover recurring expenses. Cut down on the expenses you can control, such as your cell phone bill. But it’s vital that you make a plan with the bank if you can see you won’t be able to cover repayments on costs that you can’t control, such as your home or car loan. “If you miss payments for three months, you can be blacklisted,” says Lwanga-Nanziri. “Talk to your bank manager as soon as possible and try to make a plan to make lower instalments.” You can also go to a debt counsellor registered by the National Credit Regulator to get help with negotiating more affordable repayments. However, you need to have built up a record of at least three months’ missed or late payments to show that you need their help. Rather deal with the problem immediately.
To read this article where it originally appeared on the Industrial Development Corporation website, please click here