At Wonga, we want to challenge you to start a savings plan if you don’t already have one.
Our challenge to you is to try and save 10% of your salary each month and not touch it, unless you have a real need for the money due to a financial emergency. And no, we don’t mean for that ‘awesome’ pair of shoes you saw in the mall yesterday or the latest game release on Xbox.
If you are able to save 10% of your monthly salary and place it in an interest free savings account (available at all major banks), in 12 months you should have saved more than a full months’ salary. Other than the bank charges, you will not incur any additional expenses due to no tax interest earned if your contribution amount is below R30 000 per year or R500 000 for the lifetime of the account.
There are some great savings calculators online for you to see how much you could be saving and what different rates of interest make to your total saved.
Paying of Debt vs Saving
There is a great debate about which is better; paying off your existing debt at a faster rate than is required vs saving money in a savings account. Which has the greatest return for your pocket? The answer is, it depends on the duration, interest charges and total amounts of debt that you currently have.
One aspect that all financial experts generally agree on, regardless of the choice you make between paying off debt faster or saving money, you should have an emergency savings account in place and should be equivalent of at least 1 months’ salary.
What if you can’t afford to save?
You might find that you are unable to save any money at all as your living expenses are equal to or exceed your monthly salary. This is a difficult situation to be in and often can lead to a downward spiral of debt until you are no longer able to service your repayments. If this is the case, we recommend you contact the financial institutions you owe money to and ask them about the possibility of a payment arrangement which may reduce your monthly expenses.
You will also need to create a budget and closely monitor your income (money coming in) and expenditure (money you pay out) to find areas that you might be able to cut back a little. For example, you might be buying lunch from a takeaway ever day at work. With the average hamburger and chips now costing more than R20.00, you might be spending over R400 per month on lunch.
If you need more help with budgeting, here is a free MS Excel Budget Template to help you get your finances back in the black.