NICOLETTE’S NICKELS
Contractual debt, mandatory living costs and insurance are top of many of our budgets. We can barely squeeze in an entertainment budget line. The cost of living seems to hinder any savings or investing.
We always speak of the principle of paying yourself first. The idea with the principle is that you should pay yourself first through savings and investing before allocating money to other budget line items. Is this call even realistic with the cost of petrol skyrocketing, food prices increasing, interest rate hikes, and rising global inflation? The simple answer for many is no. However, one must think of the future.
What does a financial future of zero savings and no investments look like? Pretty bleak!
We often teach the apple analogy. If you earn 10 apples, you should use eight for debt, living expenses, and insurance; the other two are how you "pay yourself first". One apple should be planted as a seed. It would be best if you nurtured it throughout various weather conditions. You don't know how much it will eventually bear, but you are sure that something may come from it. You do this every time you earn — one apple into the ground. One day you may wake up in an apple orchard. You can now package your apples for resale; you can make apple juice, apple tarts, and apple pies; the opportunities are endless.
The other remaining apple must go into the deep freezer as your savings. When there is an emergency, and you need eleven apples one month, you take one out of the freezer, thaw it, and have an additional apple.
Again, you do this consistently as you earn your apples monthly. You place one in the freezer. You could be saving the apples in the freezer for emergencies or when you want something that will require additional apples, also known as financial goals.
With this practice, you prepare for such days — the days of rising costs and uncertainties. You create predictability within your finances. Without doing this, you resort to borrowing, and when borrowing from lack, we often don't structure our credit agreements well.
What am I saying? Your situation may not be like this; you might not even have the privilege of earning 10 apples, but it doesn't matter how much you make. What is important is how much of it you keep. We have heard that 80% of South Africans spend 70% of their income servicing debt or the middle class; those who earn between R180 000 – R500 000 spend 80% of their income in the first five days. We are well aware of those numbers; we know them too well. We can turn this around. We need to start reporting on how "x number of South Africans are using 20% of their income saving and investing" despite the situation. These findings will help mold behaviour.
Other tips you may want to look into this Savings Month:
- If you are employed and part of a group employee benefits scheme, consider finding out where there are possible savings opportunities and check against your budget for potential duplications.
- Relook at your budget and cut or reduce variable expenses. If you have insurance, request quotes from other service providers – there may be an opportunity to pay less in premiums. Just ensure you are comparing apples to apples.
- Try to pay off high-interest-rate debt. If that isn't possible, speak to your credit provider and find out if there are opportunities to restructure your credit accounts. Make sure you stick to your credit commitments – this isn't the time to hurt your credit status.
- When it comes to investments, a great investment partner (wealth or financial planner) may have helped balance your portfolio by now so that your portfolio can ride out the bearish markets with less impact. It's also an opportune time to ask about fees. Assess how much you are paying in comparison to your returns.
It will be a rocky journey this July Savings Month, but things will get better if we all stick to the basics.
PERSONAL FINANCE