Living frugally
Trim the excess and find ways to save.
For many South Africans, the idea of saving is a dream. They want to save. They know they should save – but many see themselves as being unable to save right now. They put off savings until the next pay increase, until the kids finish university or the debts are paid off.
Fact 1 – YOU CAN SAVE
Experts say it doesn’t matter how much you earn, everyone has the potential to save.
Fact 2 – YOU HAVE TO WANT TO DO IT
In order to move forward with a savings plan, you have to be serious about saving.
Fact 3 – SET YOURSELF A GOAL
Create a monthly savings goal that translates into a six-month goal, then a goal for a year or perhaps five years.
Smart, frugal living
Frugal living doesn’t mean that you need to adopt a Scrooge persona and deprive yourself and your family of anything good in life. It simply means adopting a budget that allows you to live comfortably within your means – perhaps even slightly below – and gives you a good opportunity to save. Simply put, living frugally means that you are less wasteful, more creative and more resourceful with money.
Frugal living means:
- You have a good monthly budget
- You stick to your budget
- You manage your debt
- You cut back on unnecessary extras
- You shop smartly
- You save water and electricity
- You determine your needs vs your wants
- You don’t try to keep up with the Jones’
Start saving
Step 1: Draw up a budget
If you don’t already have one, now is the time to determine what your expenses are and if you earn enough to cover these expenses. Check your bank statements and include all payments you make. Calculate costs for all household expenses, including utilities and transport and/or fuel costs.
According to Octogen, you should be working towards a 35:25:35 budget.
Debt repayments should not exceed 35% of your monthly income, with financial services taking around 25% of your monthly income (retirement, savings etc.). Household expenditure should consist of 35% of your month income with the remaining 5% put in an emergency fund. An emergency fund is money you put away in addition to any planned savings money you save under financial services.
“This is a good strategy to proactively improve your personal financial health rating,” says Paul Slot, director at Octogen. “This is possible with the correct spending balance between household expenses, debt repayments and financial risk spending. If this balance is maintained it is more likely that your ability to deal with financial emergencies will be manageable and you are less likely to resort to expensive emergency loans and more importantly, your financial stress will be manageable.”
If you need help, do your assessment online on www.budget-planner.co.za. This is a free service.
Step 2: Trim down
Take a good look at your payments and find areas where you can save. This depends on your current financial situation. If you are in a serious situation, you should consider professional help to assist you now, before you face debt review.
Needs vs wants. Needs are the things you must have in order to survive, like food, shelter and clothing. Wants are the ‘extra’ things you would like to have or do.
Here are some areas where you can cut expenses:
- Satellite TV and entertainment. How much are you paying per month and how much TV do you watch? If you don’t want to cancel the whole subscription, can you drop to a lower package for a lower monthly payment? How often do you eat out every week? Can you cut back and save?
- Food. Drill down your groceries costs and find ways to save. Make weekly meals lists and find specials on the items you need. Don’t shop without a list. Consider making meals like soups, stews and pasta dishes in bulk, then freeze for use on another day. Buy fresh produce, chop, blanch and freeze. Don’t let food spoil in your fridge. Buy fruit and vegetables in season. Look for good deals on meat. Buy bulk packs, spilt into smaller bags for individual meals and freeze. Consider how much you spend on alcoholic beverages per month. Could you save buy drinking less? Do you buy lunch at work? Consider a packed lunch from home.
- Car and household insurance. When last did you call up your insurer and ask them to review your policy? If you haven’t claimed in the past three years, chances are good you can quality for a discounted rate. Some insurances now also have savings options that allow you to download an app to your phone. Based on your driving performance, you may quality for a portion of your premium back every month.
- Utilities. Find ways to save water and electricity on a daily basis. It’s good for the planet and it saves you money.
- Landlines. Check how much you currently pay for your landline. What is included? Bundle deals can be far cheaper and you can get free national minutes per month or free calls after hours.
- Bank charges. How much does your account cost you every month? Check what your bank offers for bundle accounts and how many transactions you get for this amount. Check how much you pay for swipes for debt card transactions. Check the cost of drawing cash at the ATM. Never use another bank’s ATM to draw cash. Additional charges are levied and these can be high.
Step 3: What should you do with the money you save?
Paul Slot offers advice:
- Pay off debt. If you have debt it is good practice to repay the smallest debt first and close that account. Close the account to remove the temptation to use it. Once that account is closed do the same with next debt. Your aim is to limit monthly debt repayments to 35% of your after tax income.
- Check risk cover. Once debt is under control, check your risk cover. This includes any financial risks not covered such as medical risk, accident risk, risk of theft and unplanned expenses. List these risks and start covering your top risk with appropriate risk cover.
- Retirement and emergency savings. Once your risks are covered increase your saving for retirement and emergency fund saving.
Resources
- Paul Slot, Director at Octogen, www.octogen.co.za
- The Balance, www.thebalance.com