Five steps to financial freedom

The key to building personal wealth is to adopt the basic principles of saving money

Image: 123RF/andreypopov

Women often experience gender bias in the workplace, receiving less pay than their male counterparts, taking time off work or pursuing careers less aggressively than men because they are balancing their roles as employees and mothers. In addition, many South African women face the challenge of being single parents.

With National Savings Month over (but always top of mind) and Women’s Month in full swing, it is appropriate that we focus on financial habits and how to move from financial vulnerability to prosperity.

Saving helps us reach our goals and become financially secure. Savings also protect us from going into debt when emergencies happen. Savings should also be set aside for planned expenses rather than buying on credit – that way you harness the power of compound interest to work for you rather than against you. The key to building personal wealth in general is to adopt the basic principles of saving money before you spend it.

The increase in VAT and higher fuel prices are putting financial pressure on South Africans who are struggling to make ends meet, but that does not mean you can’t save. You don’t have to be earning a lot to start saving.

To save, you just need to spend less than you earn. Saving may be as easy as giving up on pleasure spending to save for a goal such as an emergency fund, towards a child’s education or for a family holiday.

Cutting back on pleasure spending may not be as painful as you think. It could be as simple as cutting out on buying certain expensive brands, or eating out twice a month instead of weekly – you could be saving up to R1,000 a month.

If you invest into a Capitec flexible savings account you will earn about 4.85% interest, which is above the current inflation of 4.6%. With consistent saving, this could pay for a ticket abroad or a luxury weekend away. If you are prepared to lock in your savings for a fixed term of your choice, you could earn an even higher interest rate of between 6.9% and 9.4%.

You could also save by avoiding store cards with high interest rates and buy clothes with cash. Online shopping can also lead to trouble if you’re trying to get out – or stay out – of debt. Do you really need an item or would that money be better spent on nibbling away at your debt? Just because a bargain is available doesn’t mean you have to buy it.

If starting a savings account is something you mean to do but keep putting off, remember that smartphones make banking and savings so much easier, as you can often open a savings account on an app.

“The first prize is to use banking apps,” says Francois Viviers, marketing and communications executive at Capitec Bank. “Apps have become the most convenient way to bank – they save both time and money.” 

So saving could be as easy as a click of a button. Choosing not to get into debt feels empowering, but it needs to be followed by action.

Five simple steps

  1. Face your financial realities: Take stock, be realistic and live the life you can afford, not the life you want people to think you can afford.  
  2. Balance your priorities: Many of us live for today at the expense of tomorrow.  People often say they do not have money to spend – this is not true, it’s how they choose to spend their money that is the issue. Balance between the wants of today and the needs of tomorrow.
  3. Plug the holes: Draw up a budget to get a snapshot of where you spend your money. You can then make informed decisions about what behaviour to change so that you can use your money more productively.
  4. Tackle your debt: Pay off your debts with the highest interest first and then tackle the other debts. You will systematically bring your debts down.
  5. Draw up a financial plan: That should include an emergency fund; protection from financial losses in or to your home; vehicle short-term insurance; protection from high medical expenses through medical cover; protection of your income against death and disability; and savings for retirement and other goals. Consult a qualified professional adviser to help you draw up a comprehensive financial plan.  

It may take some time to take back control, but do not lose faith or falter. You may have some bad habits to change but if you are focused, you can achieve this.

The reward is simple – a life where you can enjoy the fruits of your hard work, and the wonderful prospect of a future that is safe, secure and full of promise.

This article was updated on August 27 to reflect the new savings interest rate.

This article was paid for by Capitec.

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