Set up a savings account with higher interest rates
When you’re ready to begin a savings plan or take your savings strategy to the next level, the first thing you’ll need to do is open a new savings-specific bank account in which you can deposit money in regular intervals.
When you’re ready to do so, there are two things you’ll need to consider. Given that you will likely use your savings account for a long period of time into your future, you’ll want a savings account that not only has a high-interest rate so that you can compound your savings monthly, but you’ll also want low monthly fees which will enable you to spend less, and secure more wealth when managing this account.
It’s important to remember that your bank may not offer the highest interest rate on its array of savings account options, and that you may find the best option at another bank. It is sometimes worthwhile to separate your current and savings account by bank, as this can help reduce the temptation to remove money out of your savings account to fund certain items that you might want, but not need.
Use cashback programs at your favourite retailers
Many popular retailers in South Africa either offer a loyalty programme or a cashback offering – meaning that if you shop at one particular franchise or are willing to change your behaviour to do so, you could either factor in great savings on items you buy regularly, or earn back cash over time.
Cashback programs work on a points basis – where, if you shop regularly or during special promotions, you could earn additional points per items that you purchase. Points are then calculated using a franchise’s own method and can later be redeemed for cash.
Most popular franchises will offer a mobile app or a web app, where you’ll also be able to tally up your monthly spend, view new deals, and work out what your present cashback allowance is - this can be a great way to save money when grocery shopping.
What’s important to remember is that most franchises set an expiry date, or a rolling period in which any points you’ve accumulated will expire – meaning that you’ll need to use your points (and eventually, your cashback) within a certain timeframe in order to make full use of your reward.
Reduce your subscriptions
It can be trendy to subscribe to popular services – whether that means watching online music streaming, video-on-demand, or paying other monthly fees. However, if you find that you don’t use these services to their full capacity or purpose, it can be worthwhile to reduce your subscriptions – particularly if you’ve signed up for a month-to-month contract.
Avoid buying depreciating assets new
When you’re in your 20s, most of the assets you’re likely to need to get to work or live in relative comfort will not only be some of the most expensive purchases you’ll ever make, but they’ll further depreciate (that is, lose value) rapidly.
This means that you can often navigate your 20s attempting to save up and purchase a particular asset, only to watch it lose its value later – and all the while, you might be financing that item at its original purchase price.
For that reason, it’s worthwhile to explore purchasing depreciating assets second-hand. For example, purchasing a car or motorbike may be a necessary expense to get to your place of employment – however, the cost of these items will rapidly depreciate within your first few months of ownership, and you’ll still need to pay for any serving or repairs outside of a maintenance plan.
Similarly, many smartphones and electronics will also lose value within the first few months of having used them, and newer technology will continuously become available on the market. For that reason, opting to buy second-hand can save you a great amount of money so long as you are confident that the asset you are purchasing is in good condition.
Shop sales and markets instead of stores
In much the same way that buying certain assets runs the risk of depreciating, it’s also worthwhile to consider that you may be able to save more money by purchasing second-hand items such as clothing or furniture rather than opting to buy new.
Choosing to visit local thrift stores and markets, as well as shopping on sale, can help you spend less money in the short-term, where after you can put your savings into an investment or savings fund of your choice.
Make small investments and diversify your risk
While most larger investments (such as unit trusts) require a large deposit in excess of R20,000 or more, there are several ways that you can make smaller investments that can pay off in the long run.
It’s important to remember that with any investment comes risk – meaning that you may not be guaranteed a return or profit on any asset or item that you choose to invest in.
That’s why, when creating a new investment, it’s important to diversify your choice of products so that you have a mixture of conservative (relatively safe) and speculative (relatively risky) choices that can balance one-another out.
While you are younger, you can usually afford the risk of a speculative investment as the return might outweigh the risk; on the other hand, you may wish to invest largely in conservative options as you grow older and you need cash-on-hand when dealing with expenses.
Purchasing smaller and more speculative investments can help you reach your goals if you are willing to accept risk and potentially losing your funds. Trading stocks or smaller profit-producing assets such as commodities or jewellery can appreciate in value over time.
On a larger scale, more conservative investments can include saving up and investing in a unit trust fund, buying into an exchange-traded fund, or certain types of property.
Remember that there’s no better investment than paying off your debt first, and a good idea is to approach a licensed financial advisor and seek their advice in generating an investment portfolio that meets your needs and goals.