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South Africans are known for their poor saving habits and, as such, almost half of credit-active consumers find themselves unable to save and having to take out loans in order to pay for basic needs such as food and electricity.
The National Credit Regulator (NCR) says that for every R1 the average South African consumer earns, only 21c is left to live on – the rest goes towards paying off debt.
While the outlook may look bleak if you find yourself having to pay off debt monthly, there are ways to get yourself out of debt if you make small changes today.
The first of these should be to stop relying on your credit card or loans as a safety net. If you continue to do this, you may soon find yourself having to go under debt review for taking on too much debt.
Says Eunice Sibiya, head of FNB Consumer Education: “Cutting up a credit card could be a solution for some people – those who are just repaying the minimum balance and can’t seem to get out of the cycle.”
She points out that having debt is not abnormal, nor does it indicate an unhealthy financial position. “It is a common misconception that those who save are also not paying off debt. Remember that it is important to be able to show that you can manage debt effectively in order to build a positive credit score.”
The secret, says Sibiya, is balance. “You should not be spending an amount on credit that you are unable to pay in full every month.”
While you should be ideally saving at least 10% of pre-tax earnings, any amount will suffice. The most prominent characteristic of those who save versus those who don’t is that they find value even in saving the smallest amount. What you need to keep in mind is that it all adds up.
So, what’s the best way to save? Old Mutual recommends turning saving into a game. “Instead of force-feeding budgeting tips to yourself, look at this as an adventure. Try to top your own savings each month or compete with a friend.
“Make saving a family affair. Consider having a kitchen jar to save money for a family holiday.”
That said, don’t underestimate the importance of a budget. The primary advantage of creating a budget is that you are able to see where exactly your money is going. “Even by just tracking where the money is going, you will be more aware of your spending habits and eliminate unnecessary spending.
“One of the best ways to save money is to never see it. Set up direct debits and designate that some of your money goes directly into a savings account,” says Old Mutual.
This excerpt is from an article that originally appeared in the 9 July 2015 edition of finweek. Buy and download the magazine here.
