Every month should be savings month
Recent increases in electricity, petrol prices and rates have seen a decrease in consumers’ disposable income and impact on servicing existing debt. Higher interest rates also affect servicing debt and to fill this gap, consumers have turned to lending which has resulted in the household debt-to-income ratio to increase to an estimated 56 per cent according to Compuscan, a credit bureau.
Compuscan noted that since the removal of adverse consumer credit information came into effect in April 2014, a huge number of the consumers whose adverse listings had been removed by the regulations, had an adverse again by end of 2014. Between April 2014 and December 2014, the number of consumers whose worst position was adverse-enforcement status, increased from 0 to 2.01 million. This means 2.01 million consumers are still not able to pay their debt.
Consequently, the aggregate savings of South Africa has been adversely affected and government responded by introducing a R30 000 per annum tax-free incentive savings account effective from 2015/16 to encourage people to save. Savings plays an important role within a household’s budget, but plays an equal important role in improving a country’s welfare. People have an incline to spend as much as they can if the funds are available. Procrastination, lack of self-control which drives impulse buying, lack of financial knowledge and complex financial instruments for saving is the main reasons why the average person on the street don’t save.
“On both a personal and national level maintaining a solid savings rate is one of the best cures for individual and national economic woes. This means that we all have to live within our means. It also means that if we do, we'll be less susceptible to economic downturns in the future. All of us should therefore play our part to save and encourage others to do so too” says Western Cape Finance Minister, dr Ivan Meyer.
How to start saving?
- Keeping a list of your income and expenses – This helps in calculating the possible shortfalls and provides a starting point as to what non-essential items can be cut from your budget. Any budget cuts can be allocated to savings.
- Reduce your entertainment budget - Explore cheaper entertainment options such as spending more time as a family and not on DSTV.
- Eat In vs Eat Out - Eating out can be replaced by cooking more low cost healthy meals at home. This measure to adopting a healthy lifestyle should also bring a saving when it comes to medical bills
- Use resources sparingly - Use gas over electricity for cooking, turn off lights during the day and in non-occupied rooms, switch off the geyser after bathing to reduce your electricity bill.
- Apply the “30 day rule” - Wait 30 days before making a final decision to buy expense/luxury items. This helps in reducing impulse buying.
- Evaluate your insurance needs - Decide which insurance policies are critical and cut the other non-essential insurance expenses. Use the money from the non-essential insurance to invest in a tax-free savings account.
- Open a savings account - Savings or investment can be done in a savings bank account, pension fund, life insurance, unit trusts, stokvel, etc.
- Use public transport – Save on car payments, interest on vehicle loans, insurance and fuel.
The snowball effect of saving.
A high savings rate can speed up economic recovery. When people save more of their personal income, they not only benefit themselves by being more financially secure in the future, but the entire country benefits as the level of economic growth is increased. The more people save, the more money will be available for business to invest in commercial opportunities and should these opportunities be successful, it could lead to job creation, thereby growing the economy.
In turn, the increase in economic growth can lead to an increase in personal income, which leads again to an increase in savings which finally leads to an increase in investment, thereby repeating this positive cycle. An example can be found from 1979 when oil producing Arab nations’ savings outstripped their investment, resulting in the surplus being invested into foreign asset s at a rate of 13% of GDP per annum. The income from the foreign assets was later used to reinvest in the domestic market.
It is never too early to start saving. Start saving today.