Pay yourself first and save

Your first step towards financial freedom is to allocate a fixed amount to personal savings every month. This way you are paying yourself a "salary" to provide for your future financial security.

Why do I need to save?

Break the habit of spending everything now and not thinking about tomorrow. Even if you cannot afford much, you need to get into the lifelong habit of saving.
Saving ensures that you are prepared for emergencies that could otherwise threaten your family’s financial security.

Possible Emergencies

• Retrenchment
• Death
• Medical emergencies
• Car and house repairs

In addition, saving will also help to improve your quality of life and achieve your dreams.

Why Save Automatically?

Committing to an automatic, fixed savings plan forces you to change your spending patterns. It means that you are making yourself a priority and paying yourself first.

All you need to do is decide how to have the money deducted from your account and transferred into the savings medium of your choice.

There are three ways to arrange for money to be automatically deducted from you account.

Ask your Employer

Some employers are willing to deduct the money from your salary and pay it over to a third party, provided they have your signed authorisation.

Debit Order

You instruct your bank to pay money from your account to another account every month. You are relieved of the administrative costs and the charges.

If you want to change or cancel the debit order, you need to make the arrangements directly with the company and not the bank.

Stop Order

A stop order works in a similar way, but you make the arrangements directly with the bank, and not the company.

You have greater control and can change or cancel the stop order directly with your bank at any time, but you will incur bank charges.

How Much Should I Save?

You should save between 10% and 15% of your monthly salary. However, the important thing is to start. It is better to start earlier and smaller rather than not at all. Also remember that it is never too late to start.

Consider your situation and use the Savings Calculator to create various scenarios.

How to Stick to your Savings Plan

• Pay yourself first with an automatic deduction at the beginning of each month.
• Budget for the rest of your expenses as if the deducted amount doesn’t exist.
• Remind yourself – you are not being selfish by saving.
• Save your money in a safe place where you can’t be tempted to use it.
• Re-budget your monthly expenses and see where you can cut back.
• Do not open clothing and furniture accounts as you will be caught in a cycle of wasting money on interest on your loans and debts.
• If you have short-term debts or loans, pay them back as quick as you can as they are very expensive.
• Picture yourself in the future. When you are tempted think of your longer-term goals.
• Review your savings plan at least annually. A good time is when you get an increase, then you won’t feel it as much.

Where Can I Save My Money?

When you start saving you want to make sure that the money that you save is still going to be there in two or ten years time, hopefully with some added interest.
Start by putting your money into lower risk products. Later when you have developed the feel for money management you can explore additional options such as investments.

Savings options include:

• A Piggy Bank: A bad choice as your money can be easily stolen and no growth is involved.
• A Savings Account: A good way to start a savings plan. It is easy to open and you can access your account with an ATM card.
• Notice Deposits: Invest your money with a bank at a better interest rate than a bank account for a term and/or a pre-agreed notice period.
• Fixed Deposits.: If you want to invest a lump sum for a fixed term at a higher interest rate than a bank account.
• Endowment Policies: A way to save for a specific goal like a car, education or a deposit on a house. Policies are for a fixed period e.g. 5, 10 or 15 years. Be warned – this is a serious commitment.
• Retirement Annuity (RA): This is a contract that helps you plan an income for your retirement. It is a long-term investment. The South African government encourages this type of savings and will give you a tax deduction on your monthly contributions.
• Unit Trusts: These are a flexible and affordable way to access the stock market.