National savings month begins this month, but if you are in debt, saving may seem like goal beyond your reach.

Debt is the single biggest obstacle to saving and investing, Sowetan readers told us in a recent survey conducted with index fund managers, Satrix.

Tackling your debt and committing to only using it for a home that appreciates in value - is also a savings plan. Once you decide to do it, all you need is a plan and the resolve to stick to it.

Even if you don’t have debt, you may like 42% of South Africans surveyed by Budget Insurance have given up on saving because times are tough financially. 

Gerald Mwandiambira, acting CEO of the South African Savings Institute (SASI), says saving when you’re under financial pressure can seem like an impossible task, but it is vital to ensure you are financially stable and happy.

“Saving is not necessarily dependent on income but rather on will power and discipline,” he adds.

Noluyolo Betela, a client relationship manager at Allan Gray, says with careful planning and small sacrifices you can develop a lifestyle that includes saving and which will ultimately make a big difference.

Lindsay Frost, an investment planner at Netto Invest, says it is not what you earn but what you spend that has the greatest impact on your financial wellbeing.

She says your goal should be to spend less than you earn and not to use debt to pay for your way of life. Spending more than you earn will soon have you in a debt spiral. Then save at least 10% of your earnings towards longer term goals like retirement. 

If you are in debt, you have to get out of it first because of the high cost of the interest that will drag you down.

Frost gives a step-by-step strategy for tackling your debt:

Step One: Take stock of your spending

Start with an accurate budget of your income and expenses.  

Get copies of, or download from your bank site or app, bank statements for the last three months. Sort your expenses into categories - such as rent or bond repayment, groceries, transport, cell phone and internet expenses, entertainment, etc. Some banks offer online or app tools that do this for you, but you can also do it with pen and paper. 

Use an average of at least the three months to analyse where you are spending your money and costs you can cut. 

Step Two: Identify the amount and type of debt

List all your debts and the interest you pay for each. Remember to compare the interest over the same time periods as interest can be charged weekly, bi-weekly or monthly. Then arrange your debt from most to least expensive. 

For example, if you take out a personal loan of R5,000 for one month, it will cost you R250 in interest. But if you have a home loan that allows you to borrow against additional repayments – an access bond or flexi-bond, the interest could be as little as R72 at the maximum interest rate of 18.75%. 

In this case, the interest charged on the short-term loan is 247% more than that charged on the bond. 

Step Three: Draw up an action plan

Put together an action plan to pay off your most expensive debt first by paying a bit more than the minimum due each month. You may think that you have no money to do this, but look at what the interest is costing you each month and then look hard at your budget. 

Imagine what you could save if you didn’t have to pay interest on your debt. 

Decide what that is worth to you and trim or cut out expenses to match. You may already have had to make some spending cuts as times are tough, but with a few more or some cheaper substitutes you can also reduce your debt to save on the interest – see tips alongside.

Make your own choice on what sacrifice so you are committed to it for the sake of breaking your debt cycle. The more you repay each month, the faster you can reduce your debt and save on interest. 

As you repay one debt, use that repayment to pay more off on the remaining debts.

You can consider consolidating your debt, but you be careful not extend the term over which you repay some of your debt as ultimately this will cost you more in interest.

Step Four: Start saving

Once you have paid off all your debts, which could take several months or even years, take the money you were using to repay your debts and save it. 

The first step in your savings journey should be to build an emergency fund for those pesky extraordinary expenses that crop up regularly, whether it is a family member who needs emergency medical treatment or an appliance or car that breaks down, or a school outing for your child.

Implementing your savings plan is more important than where you save, Frost says.

 Budget Insurance’s survey showed that having “disposable income” – money left after you have paid all your expenses – plays the biggest role in the consistency of our saving habits, marketing manager Susan Steward says.  

In tough times, your expenses can quickly exceed your income, but it is likely that you can find a cheaper way to live to create a way to save and get your money working for rather than against you.

How to trim your spending down

• Cellphone: Consider switching service providers or swap to a package that is more appropriate to your usage requirements. 
• Entertainment: Cut down on eating out and entertainment. 
• Takeaways: If it’s become a habit to buy lunch at the corner deli or office canteen every day, pack in lunch for work. 
• Convenience shopping is expensive: Shop wisely with a shopping list at a supermarket once or twice a month instead of popping into a convenience store to buy bits and pieces for dinner. 
• Credit cards: Abusing the credit facility on your credit card can land you in serious debt. It is also more expensive in the long run because interest charges are usually high. Either spend only what you can pay off each month or keep your credit card for emergencies only and pay for goods and services with cash or a debit card only.
• Insurance: Shop around for the best insurance premium - you may be surprised at how much you can save. You can usually save the most by using a single insurer for all your cover. Also remember the value of your car depreciates monthly, ensure your insurer adjusts your vehicle insurance premium at least once a year.

Sources: South African Savings Institute, Budget Insurance and King Price

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