The South African economic climate has been volatile for the last few years, worsened by the Covid-19 pandemic. With the hiking inflation rates, fuel hike and staggering unemployment rates, stretching the penny has become a difficult exercise for the ordinary South African – making budgeting almost impossible.

On the contrary, the uncertainty presented by the pandemic necessitates great financial planning and budgeting. Saving the penny should be a lifestyle and not an option, even during harsh economic times. However, financial literacy is paramount to a healthy saving lifestyle.

Financial literacy aids with better financial decision-making and planning and releases financial distress. Despite these benefits, people often ignore the topic as many believe financial literacy implies stringent budgeting, many financial restrictions and frugal living. They may even feel overwhelmed with the lack of financial knowledge, not realising that knowledge will empower them to reach their goals. The culture of financial planning and budgeting needs to be entrenched at an early age to avoid entrapments, which will hinder their financial freedom in the future.

South Africans are also among the worst savers in the world and just a small percentage of the population can retire at similar living standards than before. These facts highlight the importance of budgeting and financial planning even more.

You can easily save on your monthly expenses by investigating where your money is currently going. Basic things you can do to lower expenses and increase savings include:

• Cancelling unnecessary subscriptions
• planning your menu and then your grocery list, to save by eating at home and you reduce food waste;
• having “no spending” days;
• decreasing travelling expenses through better planning or collaboration with others
• using rewards programmes optimally; and
• automating savings by for example, using a stop order to save money to a separate account monthly.

David Bach, an American writer, came up with the latté effect to illustrate the influence small, frequent purchases have on your bigger financial picture. The latté effect stipulates that if you spend R27.40 daily, it adds up to a tremendous R10,000 per year. The R10,000 is not even taking the long-run magical effect of compound interest into account. These so-called latté effect expenses include things like takeaways, cigarettes, coffee, and unnecessary banking costs.

The idea of budgeting and limiting expenses does not mean saying goodbye to your beloved daily cappuccino, limit it to a weekly spoil. Anything too restrictive will set you up for failure if you are not allowed flexibility or a treat now and again.

You can still enjoy some of life’s delicacies without being impulsive and rigging your wallet. It is better to budget for the things you enjoy the most such as vacations, weekend-aways, festivals, clothes, and even gifts. A great way to establish a savings plan for expenses that you know are coming up is a sinking fund.

As soon as your everyday expenses are under control, it will be easier for you to start saving for retirement and large purchases such as property.

The first step is always the toughest, but when expenses come up and you can pay them without a struggle, you will find the motivation to improve and continue as long as you keep your “why” in mind.

There is a difference between saving and investing. Usually, there is no a big return with saving. It is for short-term goals such as a wedding or your emergency fund and the money is saved in a savings accounts of fixed deposits. Investing, however, is a step you take when you want your money to start earning more money for yourself. This will be in products such as unit trusts, retirement funds, direct shares, etc.

Investment products get more complex, and the right product would be specific to your circumstances and needs, but a great long-term investment product is the Tax-Free Investment Account, which is readily available on many platforms such as EasyEquities where you can choose direct shares and an abundance of offshore unit trusts.

Financial knowledge is power and can buy you peace of mind. The journey to financial freedom starts with you.

• Prof du Toit is an associate professor in the department of financial management at the University of Pretoria and financial accountant and Van Gass is founder of bankbeter.co.za and University of Pretoria masters of commerce graduate