How much should I save and how can I save
South Africans are not saving enough. We often read about famous sportspeople who have retired poor because they could not understand the importance of saving when they were at the pinnacle of their careers. It is not only sportspeople but people from all walks of life because according to the National Treasury South Africans are not saving enough and around 6% of South Africans will be able to live comfortably after retirement. But what is savings and what are its benefits?
According to Metropolitan Get Up financial coach Lyndall Adonis, “it is important to save because you can’t predict the future, anything can happen and you don’t want to put yourself in unnecessary debt. Also if you have savings it gives you the freedom to do what you want.”
An emergency may occur at any time. Without savings, unplanned events can become a financial burden. It is, therefore, important to save money to help yourself or your family become financially secure.
Money should also be saved to buy expensive items too costly to buy with your monthly salary.
How much should I save?
We all earn or make different amounts of money every month. And we all have different monthly financial obligations. This determines how much a person should be saving each month. However, there are guidelines you can follow when deciding how much you should be saving each month.
Save more to reach your goal faster
You can reach your goal faster by saving more each month. To accomplish this will mean you have to make sacrifices. Are you willing to put an extra R100 per month to arrive at your savings goal years or decades then you otherwise could? The sacrifices you make on your current lifestyle will make saving much easier. The most critical aspect of building a sizable investment portfolio is living within your means and avoiding debt. The more you are willing to give up today, the faster you can reach your savings and wealth goal.
The savings benchmark of saving
Jan van der Merwe, head of actuarial and product at PSG Wealth argues that the amount you should be saving will always depend on your goals, the time you have at your disposal, and your ability to save.
According to PSG wealth, the rule of thumb is that you should allocate 15% of your monthly salary before tax to retirement savings. After you have done this, you can consider the following spending guidelines for your after-tax income:
- 60% for necessities (Food, Housing, etc)
- 30% for entertainment and luxuries
- 10% for discretionary savings (education, emergency fund, etc)
Internationally, many sources recommend saving 20% of your income every month.
According to the 50/30/20 rule, coined by bankruptcy expert Elizabeth Warren, 50% of your income should go to your needs such as rent and food, 30% to your wants (holidays, cosmetics, etc) and 20% to savings.
How can I save?
“The first step is setting up and sticking to your budget; delaying saving until you have enough money is likely to fail. You are far more likely to succeed if you prioritise investment and commit your money to your long-term goals before you are tempted to spend it elsewhere,” said Van der Merwe.
Set Savings goals
According to experts, one of the best ways to save is to know what you are saving for. Savings targets with a timeline will make it easier for you to save.
Many people feel that they can’t save unless they save a lot at once, which can be difficult if you live from paycheck to paycheck. “But if you keep the go big or go home attitude when it comes to saving, you may never start saving at all”. However, starting small depends on your situation. The most successful strategies are the ones that fit you and your lifestyle and you can maintain over time.