Its national savings month here in South Africa, and not that I am a Financial Adviser in anyway, I do feel I have a few tips and methods to boosting your savings. Let me preface this post by saying, saving needs you to start changing your current habits. I believe in the moto, ‘What gets measured gets managed’. So often banks and advisors tell you to setup automatic debit orders, but I just see this as loosing control and resigning yourself from your financial matters. So lets start measuring and managing instead!
The heading above is actually the wrong way to look at savings. Do not try to maximise your savings, try to minimise your spending. Unless you are investing long term in unit trusts or stocks, bank accounts will simply never give you the sort of ‘growth’ that curbing your spending can. My combined interest on my personal bank accounts averaged R300 ($30) each month last year. Most people will easily spend that in a single day, after buying coffee on the way to work, snacks, and then dinner and a movie. In this example not going out for one night per month saves you more than your bank account will earn in interest. Don’t worry I have not become a hermit, I love a few beers after work with friends, spending weekends with my girlfriend, etc. So how else do you save? Optimise your life, 80:20 your life and take stock of everything you are spending money on and ask yourself, ‘do I need it?’
The world is moving more and more toward a monthly subscription model, you pay for Cellphone Contracts, Satellite TV or Netflix, Adobe CC, Medical Aids and Dropbox monthly. Insurance, Magazines and Banks have been doing it for years. I see these monthly bills as the enemy of saving, so limit your exposure to monthly debit orders. I have 5 and they are necessary evils, cellphone contract, insurance, medical aid, pension and because I am a photographer the Adobe CC photography bundle. Technically the pension can be considered saving 😉
So lets begin saving money:
- Step 1: Find a reason to save. Set a goal. Its simple for me, travel! It might be a house, car or computer for you.
- Step 2: Start keeping a daily spending tally. I know it sounds like a lot of work, but just use the note app on your phone and write down every little bit of money you spend, from dinners to the packet of chips from the vending machine. Total it up each evening before bed. You will quickly begin to notice the patterns of money wastage. This is a great habit I picked up whilst traveling, and it kept me to my daily budget.
- Step 3: Look at your costs monthly and begin to shave off or cancel any monthly bills you do not need. Read through your insurance and other contracts and remove items or features you simply don’t need. Keep this up to date, don’t land up insuring something you sold, for example.
- Step 4: Create your own daily budget. Look at your salary, subtract your living ‘fixed’ costs (rent, contracts, medical aid payments, etc) then subtract however much you want to save. What you are left with is easily divided by 30 or 31days and you will instantly see how much you can spend per day in a month. For example, if you have R3000 available for spending, you only have R100 per day! Feels different when you see it that way. Hey if you don’t spend your daily budget today it carries over to the next day and so forth, meaning you can still have a few extra beers on the weekend if you just stayed at home on monday & wednesday night 😉
- Step 5: Spend some time, a week or perhaps a month, measuring your habits. Write down the kilometers driven each day in your car, the number of kWh used of electricity each day. These are all clues to how you are spending your money. I have taken this to the extreme, so much so I know how much a simple shower (geyser power usage) costs me. Saving energy, saves money!
- Step 1: So in Step 2 above you began to spot your daily spending habits. How does that compare to the money calculated in Step 4 (I call this ‘available for spending’ money). Do you need to start cutting back on your daily spending?
- Step 2: I know at the start of this article I made it sound like bank interest is a joke, but its still good to have. If you don’t have a bank account that earns interest its time to get one ASAP. If anything your money needs to match inflation, or your money is just becoming more and more useless by the day. In May 2015 the CPI (consumer price index) was measured at 4.6%. Find an a bank account with a similar rate. Don’t leave money sitting in accounts that don’t earn you interest.
- Step 3: Every action/purchase you make, ask yourself if you need it and why? I have this internal discussion all the time, from ‘do I need/want one more beer?’ to ‘will I eat R150 worth of food at the all-you-can-eat buffet or would the R75 curry be the better option?’
- Step 4: Save Petrol. Plan trips, and group together tasks if they are all in the same direction/location. Don’t waste your own time and money driving back and forth. If you need to make a trip somewhere make it worth while.
Quick Save Tips:
- Being a guy, I switched from buying regular razors to an Electric Razor. Razors are insanely expensive and these days the new Phillips Phillisave Aqua does a a great job for those that enjoy a wet shave.
- Start carpooling, walking or cycling to save money on petrol. Its healthy and good for the planet.
- Try repairing something before you just throw it away and buy a new one. A quick google can quickly show you how to repair something or even better up-cycle it into something new and beautiful.
Extreme Saving Tips
- Do you need to wear name brand clothing? I doubt it! Don’t waste money on fancy labels.
- Do your own laundry, every time you turn the geyser on wash a few items by hand. Who needs that power hungry washing machine anyway?
- I have gone as far as installing a 12v solar system throughout my tiny house. I now run all my lighting (4w LED downlights) and charging of cellphone & hopefully soon laptop off a single 80watt solar panel. It did cost about R4000 to setup, so break even vs eskom will be a long time. Upside is I don’t notice load shedding :p
Spending Small, Saving Big
I don’t feel like I miss out on anything in my life. None of my friends have made any comment or noticed a change in my day to day habits, and yet back home I am living a completely different lifestyle to the one I had in 2012. I used to rattle around in a massive 2 Bedroom, 2.5 Bathroom apartment with massive open plan kitchen and lounge, and most of that space was wasted. So much so that I had a small home cinema in my flat. It was crazy!
So start today, sit down and look for the costs in your life that don’t add value to your life anymore… and follow Step 4 (creating a daily budget) above, it will change the way you look at your monthly budget!
I am gonna leave you with this TED talk as a last thought!