Behavioural finance shows us that if we have to cut back on our lifestyle in order to save we experience this as “a loss” today rather than as a long term benefit. This feeling of a loss can really demotivate us, so we need to find savings that have a small impact on our lifestyle but a big impact on our long term wealth.
1. Check your bank fees
A common oversight by many young people is not to change their savings account into a transactional account when they start work. Banks estimate that you save around R80 a month by moving onto the correct package. That is a R960 a year saving! If you added the saving each month to your long-term investment plan you would boost it by R6,000 within five years.
Also reduce day-to-day banking costs by only ever drawing cash from your own bank’s ATM, and if there isn’t one nearby you can use your debit card to draw cash at your local Checkers, Spar or Pick n Pay for less than the cost of an ATM withdrawal. Also set up a debit order to pay your credit card instalment so that you never have any penalty fees or interest – it will also boost your credit score.
2. Watch the small day-to-day stuff
Do you know that if you buy one cappuccino a day you will spend R6500 a year! This is not to say that you should stop having the occasional coffee, but if you cut back to three coffees a week you will save R3700 a year or R300 a month. Invest that monthly amount for five years and you have a tidy nest egg of R23 000. The same applies to packing lunch for work rather than buying a meal every day – here the savings could be even greater.
When you go shopping compare prices between the various brands and find out what is on special. Also buy your fruit and veg loose – it is far cheaper than the pre-packed options.
3. Save your change
Have you ever wondered how much money you would collect if you saved all those coins weighing down your purse? The answer runs into thousands of rands. Keep a jar in your kitchen where you put all your loose change at the end of the day. Once it is full take it to your local school’s tuck shop or even your corner café. They will be only too happy to take your coins in exchange for notes. Remember though not to just spend the money at the corner café – have a goal for that money and add it to your investment or to fund the festive holidays.
4. Call your insurer
Car and house insurance have become a lot more competitive and you may still be paying old rates, so call your insurer and tell them to sharpen their pencils.
5. Pre-save for your electricity
Average out your electricity costs over the year so that you are not hit with those winter bills. Work out how much you spend a year and divide that into twelve equal payments. For example if you have a pre-paid meter you will be purchasing more units than you need in the summer months thereby building up a surplus for winter which you are able to dip into without increasing how much you spend each month. As you are buying units you could actually score when the electricity price increases as you have already pre-bought electricity. Even if you have an electricity account, you can still pay in extra during the summer months.
6. Pay yourself first
Now that you have found the extra cash to save, set up a debit order to go off at the beginning of the month before you spend it. Human nature is to spend all the money we have in our account each month so you need to protect those savings and pay yourself first.
7. Save more tomorrow
Use the Save More Tomorrow plan to boost that debit order savings each year. In their book Nudge authors Richard Thaler and Cass Sustein recommend using some of your salary increase each year to boost savings. For example if this year you received a 7% salary increase, sign a debit order immediately to put 2% of your additional income into a savings account. Every year commit to increasing that debit order by a further 2% of your salary. Within five years you will be saving 10% of your salary without having to cut back on your spending. Another way to achieve this would be to commit to saving an amount that increases by a few percent ahead of inflation each year, for example a 9%-10% escalation on your monthly savings plan.