Cape Town - Sticking to a plan of saving and investing is a painful exercise, but when you start you gain financial freedom, says Fin24 user Kgothatso Malatjie.After reducing his debt, he now has more than 50% of his income available to spend freely, without getting into more debt.
"Debt is an infinite pit but savings is a culture; whether it's negotiable or not is the question and depends on how important it is to you," he explains.
Malatjie shares his 4-point savings plan.
1. Reduce debt
How I avoided this was reducing the amount of credit I used, this not only means a healthy credit record for me but it also meant I had the credit available for the things I really need at unforeseen times. Having retail and credit accounts was something I never envisioned when I started working until I could not receive credit to acquire a car or a home because I had no credit history, which simply meant opening accounts.
When I noticed how committed I was at paying debts instead of saving, I started a 12 to 18 month plan to have my debt reduced, this meant cutting unnecessary expenses. I then started limiting myself, instead of spending all that has been offered, for example if my credit limit was R15 000, I only spent R3 000 until.
2. Budget and set goals
After reducing my debt, I started planning for my savings. I started by setting goals, so that I have a reason to commit. By doing so it helped me stay committed to this journey I had started. I started looking at how much I wanted to achieve in a specific time frame and calculated without the interest I would earn to see if I would reach the goal with my own contributions and have interest as a bonus to what I achieved.
So regardless of the interest earnings from my savings and investments, I would have achieved the initial goal I set for myself, which meant my interest was more like a 13th cheque. For example, my goal first goal was to get R100 000 in 5 Years, like many people I thought of an investment of R500 per month up until after I shopped around with a few companies and had a few quotes.
3. Do the research
A lot of companies have competent staff ready to assist you with your savings and investments, so these are the people you need have a talk with in order to make your goal a priority. Get to know the product you are taking with regards to flexibility, withdrawals, tax implications, investment performance and fees don’t just agree and pay for something you don’t know.
Every institution needs to make money to stay afloat, I started comparing the fees across the different companies. After all the comparison, I committed to the most reasonable offer I could get. I also learnt nothing with investments is ever guaranteed, if it is there is not much growth.
4. Commitment - I made savings my debt
Knowing that I had a disposable income, I started making my saving a debt and a monthly commitment I could not miss. Knowing that I had started saving and investing for myself and my goals, I started treating my savings like a monthly expense I could not miss, before I knew it I had already developed a savings culture.
Similar to how one would make sure the bond or mortgage, vehicle repayment, insurance policies, water and lights are paid at the end of the month, savings has the same principle. If you cannot commit to it, then it’s not important.
In addition I rescheduled my payments and debit orders in an order of importance, so that even if there was a shortfall because of unforeseen expenses, I rather not watch DSTV that month because entertainment is expensive and I'd miss the payment rather than miss a payment towards my savings or investments.
* Do you have a successful savings plan or story to tell? Share it with us now and help others to also become Savings Heroes.
SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.