Bad debt can sneak up on anyone, regardless of your income. The only way to prevent making bad debt is to commit to saving for specific things every month, without fail.
Although every life cycle brings with it different saving priorities, there are five saving goals however, that one should start saving for as early as possible. This not only fosters a healthy savings habit, but also takes the strain off you when it comes to the more expensive, long-term saving goals.
Over time you will be able to create a buffer that could safeguard you from needing a loan, or maxing out your credit and store cards.
Things to save for now:
Everyone knows how important it is to save for retirement, yet only 6% of South Africans save enough for it. According to FNB’s Financial Advisory, most South Africans have either no retirement savings or only take out funeral policies. And, alarmingly 33% of retirees in the country still have debt to pay every month.
Consumers have to get into the habit of saving a minimum of 15% of their income towards retirement policies. The sooner you start the easier it will be to get used to the amount.
Having an emergency fund is essential for any household. Accidents happen and when they do things like medical fees, car trouble, unemployment, home repairs, vet bills etc. can easily cost thousands and thousands of rands. If you don’t have that kind of money saved you are forced to use your credit card or take out a loan, which will take you years to recover from. Instead, be proactive by saving for the inevitable before it happens. The rule of thumb is to have three to six months’ of living expenses saved safely somewhere. However, many suggest up to nine months’ of living expenses is a more accurate buffer to have saved.
Consumers are often told to cut back on luxuries. If you are in financial difficulty these types of expenses are most definitely the first you should cut back on. However, nothing stops you to save for the things you really want in life. Instead of buying a flat screen TV on account or going on that holiday using credit – save for it.
Start an account to save for things like a vacation, a down payment on a new car, a dream home, a new TV or a home revamp etc.
It might seem like a silly thought to save for gifts but your children’s birthday gifts (as well as birthday parties), Christmas and anniversary gifts and even friends and family members’ birthday gifts can force you to make debt if you didn’t budget or save for it. Just think of how many times have you bought gifts for people using store credit…Prepare well in advance by saving towards a gifts fund.
Clothing accounts are one of the top three debts South Africans are struggling to repay. That is why it is essential to save for the clothing needs of your family in advance. Luckily with clothing it is easy to anticipate when you’ll have to invest in a new pair of work shoes, or when your child will outgrow his/her clothing. Make provision for this by setting money aside monthly, and planning your shopping around sales and discounts.
Unfortunately, the reality is that debt has already absorbed many South African consumers’ cash flow to such an extent that saving has become impossible. If this is you, and you need help, contact Debt Rescue.