Cracking The SAVING Code

Figuring out how much money you should save from your salary each month can be difficult. Should you save a fixed amount or a percentage of your income? Does increasing your savings rate means sacrificing other expenses? How much of your income can you save during lockdown? 

These are all important questions, and the short answer is… it depends.

It depends on your age, your financial goals, salary, and expenses.

To calculate how much you need to save each month, the 50/30/20 rule is a good place to start. The 20 represents the amount you should save. Where 20% of your income goes towards ‘savings’.

If COVID-19 has taught us anything, it is that saving is an important part of financial security.

You know you need to start saving. So how much of your salary should you save in 2020?

Why should you save money? 

Firstly, it’s important that we understand the WHY and as much as the HOW.

If you don’t earn a lot of money, saving money may seem impossible, and even laughable. Why bother with saving money if you only have R100 left at the end of the month?

Because everyone should start somewhere, and every amount saved is a positive contribution to your future financial situation.

Saving money gives you peace of mind. And more importantly, it provides you with options. And the more you save, the easier it becomes to reach your financial goals.

Have you ever stayed awake all night due to financial stress? If not, you’re lucky, or your day will still come.

Many of us have worried about paying the rent on time, saving for retirement, paying for children’s school fees etc at some point.

If you have enough money saved up, financial situations, don’t have to end up stressful.

Once you’ve saved up enough money you can start investing your money and grow your wealth over time.

Financial independence and a secure financial future starts with saving money. 

How much of your salary should you save each month? 

It depends on a few things. But the biggest factors are your savings goals, age, and income.

These factors play a huge role in how much money you should be saving each month.

For example, if you’re saving for retirement, your age and income play a huge role in how much money you need to save. And if you’re saving for a family vacation, your income and expenses will determine how much you need to save.

The amount that you save each month needs to be aligned with your current savings goals and your current financial situation.

If you want to save for retirement, an emergency fund, a house, and a vacation, but you only have R1 000 to spare every month, you might be disappointed. And possibly give up all together.  You won’t be able to save towards all these financial goals at once. You have to choose which financial goal is most important to you and focus on that goal first.  

Once you’ve reached that financial goal, you can move on to the next one.

How do you start saving every month?

The simplest way to start saving is by using the 50/30/20 rule.

When using this method, your income is divided as followed.

• 50% is spent on living expenses (mortgage, rent, transportation, groceries etc.)
• 30% is spent on your wants and lifestyle (entertainment, takeout’s, gym membership etc.)
• 20% is spent on debt and savings.

This method offers a solid foundation for budgeting, making it perfect for beginners who want to learn how to save money monthly.

What makes this budget so great is that it’s a well-rounded budget. It even budgets for the fun things in life.

It is important to note that this budgeting method is only a guideline, you will have to tweak it to suit your needs.

For example, if you’re monthly income is R20 000 and you use the 50/30/20 rule, your expenses would look like this.

• R10 000 spent on living costs.
• R6 000 spent on lifestyle and wants.
• R4 000 spent on debt and savings

What if your debt exceeds R4 000 a month? Then you don’t have any money left for savings.

But you don’t need R6 000 for wants and lifestyle expenses. So, you could move some of that money over to your savings and debt expenses.

Now your budget is aligned to your financial goals, instead of lifestyle goals.

Once you understand how to budget and manage your money, you can look for other budgeting techniques that are more aligned to your current needs and wants.

Where should you save your money? 

The best way to start saving is by doing your research first. Luckily, you can do it all online.

Instead of opening a savings account with your current bank, shop around for the savings account with the best interest rate.

You may want to consider opening a notice savings account. These types of accounts have higher-paying interest rates.

What makes these accounts so attractive for first-time savers is that they prevent you from spending your money. If you need money from this savings account you’ll have to notify the bank before you can use it.

These accounts are generally structured in a 7-day, 30-day and a 90-day notice period. The interest rate will vary depending on how much notice you provide the bank with.

A great strategy is to shop for a new savings account at the beginning of every year. That way you always have your money with the best savings account possible.

To make your life a little easier we’ve done some research for you.

Here are the top savings accounts for South Africa (updated June 2020)

Define your savings goals

Once you’ve defined your savings goals, you’ll be able to save with purpose. This will help motivate you to save each month.  

The goal is to put money away every month without spending that money for whatever reason.

It’s easy to spend the money you’ve saved if you don’t have a specific goal in mind.

Be as specific about your goals a possible.

For example, you want to save R200 000 as a down payment for your first property investment by the end of 2020.

The more you save the more displayed you’ll become. The more advanced savers will find it easier to save for multiple goals at once.

The advanced saver could be saving for a vacation, a property investment and retirement all at the same time.

If you’re new to saving, build up your emergency fund first. 

Once you have some financial security you’ll find it easier to manage your money and build your wealth a lot quicker.

What if you just really can’t save money? 

Saving something, even if it’s a small amount, is better than not saving anything at all.

You may be thinking “But I already spend my whole salary on food, transport, rent and child support! Where do I get money to save?”

If you can’t save 20% of your income, try to save a lower percentage. See how much you CAN save and start with that. If it’s R20, R50 or R100, it really doesn’t matter.

What matters is, is that you start.

Don’t fool yourself in thinking you can’t save money. Maybe you’ll need to spend less money on entertainment, children’s extra murals, or maybe you’re overspending on groceries.

Figure out where you can cut costs so that you can free up some cash to save.

If you are paying your debt you’re technically saving already. Once you’ve paid off your debt you can use that money for your savings.

Remember, the most important thing is to start saving. If you’re already saving see by how much you can increase that amount by. The more you save the closer you’ll get to financial independence.

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