The reason why most people are broke soon after payday is that they have a ‘spend now, save later’ mentality and also don’t have a clearly defined financial plan that would enable them to achieve their short-, medium- and long-term objectives, according to Tasmin Ali, Insights Initiative Leader at Metropolitan Retail.
She says in order to be able to stretch your salary you ought to use 50% of your income towards living expenses, 20% on savings, with the remaining 30% being your disposable income. This will ensure that you’re able to save for the future.
“By being savvier with your salary, you can make your paycheque last until the next payday and still save for life goals like an overseas trip, new car or even just being able to retire comfortably,” she says.
Tasmin breaks down how the 50/20/30 formula is likely to look like. She says by making these below small changes to the way you spend your salary can pay off and keep the post-payday blues away.
“Start by working out what your income is after tax and then calculate your living expenses like rent, car repayments and groceries. Devote no more than 50% of your post-tax earnings to these. Bear in mind that this money should only cover your needs – essentials that impact your quality of life - such as electricity and prescription medication, not your wants, like your Netflix account and other things you can live without,” she shares.
“Putting 20% of your salary in savings products, investing it in retirement annuities or using it to settle some of your debts can help set you up for financial security in the long run, so think of it as enduring temporary pain for future gain. That said, you don’t have to start with a big amount, but rather what you can afford, even if it is as little as R100. Make sure that as soon as your salary hits your account you put your savings away before your debit orders go off and before you get the chance to spend it,” she advises.
“While you can use the 30% left once you’ve covered your more important costs on wants like cellphone data, takeaways and clothes, it is important to make some adjustments to your spending so your money stretches even further. For instance, you could limit the amount of times a week you buy lunch and instead make your own. You could also cut down on how often you go out for drinks after work and ditch designer brands, opting instead for more affordable items,” advises Tasmin.