"Saving on a tight budget" is the second article in a 12 part series. Also read the rest of the Sensible Investing series:
You know you should be saving something every month, but how? Your monthly expenses use up all of your available income and then there’s that debt that needs paying off... and you still have to have some fun, right?
The truth is that once a budget is compiled (I mean it’s really easy to do — grab a piece of paper, list your income on the right and your expenses on the left , total them and see how much is left every month) you will have to face exactly what it is you’re working with. You will have to face your fear of either not earning enough or spending too much and you will have to change your habits.
In my experience, people only overhaul their budgets for three reasons:
- Their finances suddenly decline (for example; retrenchment, death of spouse, their debt catches up with them and they have to watch every cent); or
- They really, really want something expensive; or
- They want a better lifestyle sooner (financial freedom).
Which one are you?
Let’s suppose that after ruthlessly assessing your budget you discover that there really is no extra cash to start a savings plan. You now know that you will have to either cut some expenses or earn more if you are serious about improving your financial wellbeing.
If you choose to cut your expenses, here are some tips:
- Decide not to buy any clothes for six months. Most of us have more than enough to get by. We keep buying because clothes make us look nice.
- Cut down on luxury food items. Pack a lunch instead of buying takeaways. Use a flask and fill it up on decent coffee at home (stay away from Vida!). Make eating out a real treat like it used to be in the good old days.
- Assess the repayments and insurance on your car. Could you buy a cheaper car or sell it and rely on public transport or a lift club?
- Can you live without satellite TV for a while?
We are all so spoilt and these luxuries are so hard to give up. This is where you need to assess what is important to you — luxury or security.
I prefer to earn more rather than spend less. Here are some tips:
- Ask for a raise, a promotion or look for another better paying job or one closer to home so that you can save on transport costs, which are becoming quite expensive. For this option you need to be confident that you are worth extra pay. How can you add more value to your services? Do you need to study further?
- Earn extra income after hours or at weekends. There are so many options here:
- Sell homemade products — foodstuffs or craft items are easy.
- Sell other peoples' products, such as jewellery, Tupperware, perfume, etc.
- Freelance your own services. Perhaps something you already do at work like graphic design or marketing campaigns. If not then try babysitting, writing CVs, fixing appliances,etc.
- Get a part time job such as a waiter, bartender or delivery person. You will be amazed at the networking potential for better pay if you just get out there.
- Hire out unused assets. This could include your trailer, caravan or even a spare room.
Just make sure that every extra rand earned is saved. Don’t make the mistake of spending more because you are earning more! Also, keep in mind that even if you only make a few hundred rand extra, it will make a big difference to your savings over time.
Small savings do add up over time
(Assumes an annual rate of return of 10 percent)
Monthly 10 20 30 40
Investment years years years years
R333 R68 281 R253 120 R753 488 R2 108 005
Controlling your financial affairs to free up cash in any of the given scenarios requires a budget. For many people, the word "budget" has a negative connotation. Instead of thinking of a budget as financial handcuffs, think of it as a means to achieve the financial successes that you want (and the improved lifestyle that goes with it).
So, you now have a plan to free up some extra cash to save. The next article in this series will show you how to take baby steps in investing that extra cash effectively. You’ve worked hard to earn it and now it’s time that your cash works for you.