A Fin24 user wants to know how she can save as she’s battling to keep her goal of saving. She writes:
What must I do in order to have enough savings? What are the first steps to follow to save, because I’m trying my best but I’m failing. I’m spending more than what I have. This really shows that I'm indebted and I'm still young.
Debt experts respond:
The first step for the user is to draw up a realistic budget.
So what is a realistic budget?
Kelli Knutsen Marketing Manager at Intelligent Debt explains a budget is the stepping stone to a financial plan – it is a breakdown of your income and expenses. It helps you to plan for the month ahead and by sticking to it, you will be prevented from spending more than you earn and from breaching your savings goals.
Create a budget plan
- List all sources of income - look at payslips, bank statements, etc.
- List all your expenses, necessities and luxuries. Divide necessary expenses into fixed expenses (those that stay the same each month) and variable expenses (those that change each month).
- Allocate money towards a savings fund - emergency fund on a monthly basis.
- Calculate a total for your monthly income and expenses.
- Deduct your expenses from your income and make necessary changes to your budget if your expenses exceed your income. Start with CUTTING OUT LUXURIES and reducing variable expenses.
Try our Budget Planner
Stick to your budget
Creating a budget is easy; sticking to it is the hard part.
- Make sure all necessities are covered before spending money on luxuries.
- Involve your whole family – make sure your budget is visible in a place where everyone can see it.
- Downgrade banking packages to lower the fees and monitor cash withdrawals, as they can be costly.
- Cancel all unnecessary or unused subscriptions like magazines, charity donations or club memberships.
- Plan your meals and shop with a list to avoid buying things you do not need.
- Consider changing your insurance cover to ensure you have the most affordable cover in place.
A mistake that people make when they plan their spending or do an affordability check at a creditor is to work with their gross earnings instead of their take home pay.
Marais explains that there are certain statutory deductions, like PAYE, UIF, medical aid and pension contributions for an example, that will be deducted by your employer. The netto salary is what you have to spend and what you should use in your budget.
Remember to add in everything in your expenditure column, including banking fees, outstanding medical bills and tips for car guards, waiters, petrol attendants, etc.
List all debts - credit cards, loans, store cards, etc. Look at the interest the creditor charges and tackle the ones with the highest debt first.
Income vs expenditure
You need an income column and an expenditure column on your spreadsheet. If you have deducted all the essential living expenses and debt and you realise that you have nothing left to spend, it is time to seek the services of a debt counsellor. Debt counselling is a process to take charge of your finances.
READ: Making debt counselling work
If you still have money left in your budget, this is what you have to save. "Personally, I would pay myself first and use this money towards savings.
"There are several ways to save, eg a savings account at a bank, investing in the stock market through unit trusts or exchange-traded funds or even short- and long-term savings policies."
You can't borrow yourself out of debt
Do not borrow more money to spend every month if you have trouble paying off everything you need every month. No person has ever borrowed him/herself out of debt, says Marais.
"You will just be digging a bigger hole."
She advises seeking the help of a debt counsellor before starting receiving registered mail and section 129 letters warning you of legal action. "Legal action is very costly and will add to your debt burden."
In addition to a confirmation fee (this can be an extra R200 on the outstanding amount) that the account has been handed over, the collecting attorneys charge for everything, including SMSs, emails and telephone calls - and in most cases significantly above normal rates.
It is better to seek help sooner rather than later.
Find a registered debt counsellor in your area whom you can visit and who will look after you with care. You can find a debt counsellor on the NCR website http://www.ncr.org.za/or you may contact the Debt Counselling Industry at http://www.thedci.co.za/ or All Pro DC to ask for a recommendation.
Make sure the person you choose is a registered debt counsellor. You can do this by checking their name on the NCR website, or ask them to send you a copy of their registration certificate.
READ: Do you need a debt counsellor?
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