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Saving While Living Pay Cheque to Pay Cheque

By Kenosi Magosha, 10 August 2021

An emergency fund is not only useful to help you pay for unexpected car problems, household emergencies or unforeseen hospital bills, but it can critically determine whether you remain able to keep a roof over your head, says Kenosi Magosha, Head of Ecosystems at Sanlam.

In a recent Sanlam survey, 9 in 10 women said that financial worries are keeping them up at night. This shows just how worried women are about their finances with 4 in 10 admitting that there’s nothing left to save after their bills are paid.

“Many people in South Africa, no matter how much they earn, live from pay cheque to pay cheque and don’t have anything left at the end of the month,” says Magosha.

Local studies have consistently shown that many South Africans turn to debt to fund even negligible financial emergencies, as most do not have an emergency fund in place. Sadly, this trend has only been exacerbated during lockdown as households come under further financial pressure.

An emergency fund should ideally have enough savings to cover three times your monthly salary. This will help you to self-fund day-to-day expenses and meet your monthly debt obligations should you become unemployed. However, many people deem this target unrealistic and Magosha says the key is to break the hand-to-mouth pattern. “A strategy of saving whatever is left after spending is unlikely to succeed or get you out of the pay cheque to pay cheque scenario. You need to do the reverse of that in order to break the pattern.”

She shares steps that can help you start saving from your currently stretched budget.

Pay Yourself First

Put money away for saving as soon as you receive your salary. Magosha says it is best if this happens automatically. “If you are first going to repay debt, try to increase the repayment amount. If you are ready to start saving, put a debit order in place. And, if you are struggling to put money away at the moment, the best time to start is when you get an increase.”

Understand Where Your Money Goes

“Keep a spending diary for a month. Split your debit orders into debt repayments, essential expenses and non-essentials like eating out, coffee or magazine subscriptions. You may be able to create room to save once you’ve taken a hard look at your non-essential expenses. You also need to be critical – clothes are essential, but perhaps not those designer heels and you don’t need to buy something just because it’s on sale.”

Control Your Non-essential Expenses

Most of us have a good idea of what our monthly essential expenses are, but Magosha points out that we often don’t track our spending on non-essentials.

“Decide which of the non-essentials are important to you and what you are willing to give up. For example, you can skip the Friday takeaway, review your cell phone plan, and use Wi-Fi calling or other social network calling options,” says Magosha.

She also suggests trying cheaper alternatives for things you do often. For instance, you can purchase your food from a cheaper grocery store or shop around for discounts.

Reassess Your Debt

Magosha says you will most likely find money to save when you start using debt effectively. “Try to stick to good debt (for example, for a house or studies) and use cash for other expenses instead of using credit or store cards. You pay high interest on short-term debt, so make it a priority to reduce it. Once that is done, save the money that used to go to debt repayment.”

Create a Realistic Budget

Magosha says while you need to make allowance for savings, you also need to budget for things that give you joy. Otherwise, you run the risk of spending money on such things without actually budgeting for them. At least if you budget for them, you can make adjustments to your other monthly expenses upfront. “It is easy to spend a lot of money on little things which you may not even be able to recall at the end of the month. Rather use your money to save for a real treat. Always make a list before you go shopping – this will help you stick to items that are in your budget and not get distracted.”

Save Towards a Meaningful Goal

Whether it is a deposit on a house, your children’s education, a comfortable retirement or a dream holiday, Magosha says it is much easier to save if the savings goal is real and important to you, rather than vaguely saving because “everyone needs to save”.

You Don’t Have to Do It Alone

Magosha concludes, during these tough economic times if you are struggling to tackle your finances alone, it is a good idea to consult a financial adviser to help you reprioritise your finances and save a little extra every month.

Sanlam Life Insurance is a licensed financial service provider.
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