How to save, even if money is sparse

Following my article under the heading “Retirement, it’s time to take your head out of the sand” (finweek of 8 September), I was asked to discuss the matter further on the weekly TV show finweek Money Matters.

I won’t say that it was unexpected, but following my comment that the best time to start saving is today, I was confronted with a question that affects most of us in tough financial times: How am I supposed to save money if I don’t have a cent to spare? Our personal savings as a percentage of our personal income in South Africa currently stands at -2%, which means that this issue doesn’t only apply to one or two individuals who happen to share the same problem – this is a national concern.

Knowing that most South Africans live from hand to mouth these days, upon reflection, my answer to this question would remain exactly the same: start saving today.

I have mentioned on numerous occasions that if you are happy with a monthly income of R1 500 (aged 60 and above), or R1 520 if you are aged 75 and above – which is the current monthly old age state pension grant – and you are confident that this amount will cover all your monthly living expenses, then you have nothing to worry about. The rest of us, however, have no choice but to start saving immediately, because we know that this will not be enough. So here are three pointers to assist you with saving under challenging financial circumstances:

Control your expenses, not the other way around

I have come across several people in my lifetime who find it impossible to make ends meet with their current financial income. Out of desperation, they often feel that earning an extra income is the only way to survive. The sad fact is that most of them still struggle with saving, despite the increase in income.

Start by determining the exact flow of funds into, and out of, your bank account on a monthly basis. Following a regularly updated and strict budget will certainly help you to achieve this. As the saying goes: “If you can measure it, you can manage it.”

Once you know exactly what your spending habits look like, you can start to control it. One of the biggest culprits that keep South Africans from saving is the fact that too many people live above their pay grade. Buy cheaper and smarter. If, for example, you cannot afford a specific subscription TV package, cancel it, or consider a downgrade to a cheaper package. Also avoid making additional debt that will ultimately only keep you from reaching your financial goals for longer.

‘Trick’ yourself into saving money

As a child, I had a real piggy bank. Every day, I forced myself to empty any possible change left behind in my wallet into my piggy bank. It later became a competition between me and my brother to see who could fill up his piggy bank first. The success of this savings strategy was due to the fact that this money, however little it may have been, wasn’t spent on anything. As a result, I tricked myself into thinking that because there was less money in my wallet, I had less money to spend.

The modern piggy bank can take on the form of a fixed investment, such as a fixed deposit, unit trust or endowment. You can set up a debit order that can withdraw a fixed amount from your bank account on a set day every month (as close as possible to pay day), and pay it directly into your investments. I do understand that if you are finding it hard to save without any investments, investing your money left and right won’t necessarily solve anything, but the point is that if you have less money in your wallet or bank account, you will be forced to spend less. 

Be sure to claim your taxes

So many people make the mistake of overlooking the tax benefits offered on certain products. Ensure that if you have any retirement products, such as retirement annuities, that you submit these tax certificates along with your income tax returns every year. You can save up to 27.5% (up to a maximum of R350 000 per year) of your gross income on a tax-free basis by making use of a retirement product. If you have forgotten about this, start contributing today, and use any tax returns paid back to you to contribute to your savings, whether it’s from your retirement annuity or unpaid medical claims.

I know it isn’t easy to save, but I am almost certain that most readers will not be able to survive on a monthly income of only R1 500. See saving as a challenge – one that can help you to retire comfortably and financially sound.

Schalk Louw is a portfolio manager at PSG Wealth.

This article originally appeared in the 29 September edition of finweek. Buy and download the magazine here.