July is national savings month and according to the South African Savings Institute (SASI), South African households have a savings rate of 1.1% and debt to disposable income percentage of 76.6%*
Some of the reasons for the poor savings culture in the country are said to be the 26.7% unemployment rate, a lack of financial literacy, an increase in prices and a rise in consumerism. However, South Africans who do earn an income can and should try harder to save more. And as SASI puts it, knowledge about saving and putting your savings into action are two different things.
Having saving goals in place is a good start but you need a savings plan to help you action your savings and achieve these goals. A savings plan is a physical plan that stipulates how much money is being saved every month for what and where. And here’s why it is important:
1. A savings plan is the blueprint to building financial wealth
Just like you need a blueprint to build a house, you also need a savings plan to help you save effectively towards your financial goals. A plan helps you calculate how much you’ll need for each goal and forces you to you allow enough money for each in your monthly budget. A plan also helps you become more financially savvy so that you pick the right account and fund for your saving needs.
2. A savings plan eliminates any confusion regarding your savings
With a formal action plan in place you don’t have to guess, you’ll know what you need to do, and do it. Follow the plan month in and month out until it becomes second nature. A plan also prevents you from “borrowing” money from any of your savings in order to pay for immediate “wants” because you’ll know how much it will set your goals back. However, should a hiccup occur, a savings plan could help you get back on track.
3. A savings plan can help you steer clear of debt
The purpose of a savings plan is two-fold. Yes, it helps you achieve your saving goals, but it also helps you to steer clear of making debt. If your main focus is to save for short-term goals and you don’t save enough for the long-term you run the risk of falling into debt later in life. The opposite is also true. If your main focus is on saving towards retirement for example but you aren’t saving enough for emergencies, unforeseen expenses could force you into making debt.
Click here for a 5-step guide on creating a savings plan.
If you have permanent income but due to debt there just isn’t enough money left every month for living expenses (let alone saving), give Debt Rescue a call. You are not alone.
* As calculated at the end of March 2016.