Did you know that South Africans are entitled to a free credit report every year from each of the two major credit bureaus, TransUnion and Experian? 98,4 per cent of South Africa’s population have not requested theirs, leaving only 1,6 per cent who have. So how do you know how your credit is looking if you’re not looking at your credit? And if you’re not looking at your credit, what are the chances you’re keeping a close eye on your plan to save money?
Trying to Save Money?
According to the latest Old Mutual Savings and Investment Monitor, South Africa is experiencing its lowest level of household savings since 2009 when the country was recovering from the 2008 recession. 49 per cent of our working metropolitan population is saving less than they were a year ago.
South Africans, generally, spend too much. Our budgets tend to consist of honouring debit orders at the cost of ‘overdraft remorse’ on pay day and an empty promise of: ‘I’ll start saving next month,”. Only, you never do. No judgement intended.
Truth is, while it may be less stressful (short-term) to handle your finances in this way, there’s very little holding you accountable to your savings goals. Furthermore, you’re at high risk of becoming over-indebted, and possibly even blacklisted.
According to international success philosopher and motivational speaker, Jim Rohn, we should all be living according to the “70, 10, 10, 10” principle. This involves living off of 70 per cent of your income, saving 10, investing 10 in your personal and professional growth, and giving away another 10. With the average South African consumer owing as much as 75 percent of their monthly pay to creditors, however, you can see how trying to save money can be a problem.
Ignoring the problem of overspending won’t make it go away. Luckily, there’s an easy way to stick to your budget, keep your spending in check, and save money. All it involves, is four envelopes.
The envelope budget method is a tangible, and visual, way of sticking to a budget because it entails dealing in cash only (i.e. no swiping). This is how it works:
1. Work Out Your Monthly Expenses
Before you get paid, look at your bank statement and add up the amounts that come off your account automatically. Include your bank charges, as well as any ad hoc payments that are due. Also include any money you want to put aside for savings and investments.
2. Withdraw and Divide Discretionary Money
Once you have your total expenses calculated, subtract that amount from your net salary, and withdraw the remainder in cash (your discretionary spend). Then, divide that into four envelopes marked, Week One, Week Two, Week Three, and Week Four. You could also use budget category envelopes, for example, groceries, take-out, petrol, etc. Get an accurate idea of how you’ve spent in these categories from your bank statement or apps like 22Seven.
3. Hide Your Debit and Credit Cards
The idea here is to hold yourself physically accountable to your budget. It’s too easy to swipe, so hand over your debit and credit cards to a trusted friend or family member, for safekeeping. Use the cash in your different envelopes and, once you’ve run out of money in a particular week, or category, that’s it. No more spending until the next pay period.
4. Pay Back the (Extra) Money
If you’ve been particularly good about this and come out with extra cash at the end, put it towards paying off any debt. Typically you’d want to pay your highest interest bearing account off first, as that’s costing you more over the long-term. And if you have no debt, put the surplus into savings.
5. Apply For Debt Review
If you’re so far in debt that saving seems like a pipe dream, don’t lose hope! A debt councilor will assist you in managing your debt by working out a realistic payment schedule so that you will be debt-free and able to apply the above four tips in no time!