How much should you be saving?

Saving is the most important part of your financial life, it becomes addictive if you start and you want to save a larger portion and not spend as much when you see the amount grow in value.

You should be saving 10% of you income from the day you start working towards retirement. If your company offers a pension fund they to will normally put 10% to match yours and over your earning lifetime this should be sufficient to continue with your present lifestyle once retired.

Remember the later you start the less you will have, by a large margin (We will discuss this in another post). You must never be tempted to loan against or stop these savings as they are long term.


Any retirement fund is a good starting place, get yourself a financial advisor from one of the leading insurance companies, here in SA these include Libery Life, Old Mutual, Sanlam, Momentum etc.

The second saving pocket you should be creating is a short term or emergency fund saving, this should equal 8 months debt repayments or about 4 to 5 months salary. This should is for bad economic climates such as we are experiencing at the moment. Should you lose your job or interest rates spike higher you should have no problem ensuring that these effects go relatively unnoticeable if you are prepared with this fund. Once you have this fund it will slowly increase if unused due to interest. Remember if you take out any new credit loans, your savings need to increase by 8 times the loan repayment amount.

The third saving should be for the things you want. We tend to want things immediately so we do not save for them, but if we budget on wanting things in advance we can avoid going into credit to achieve these. We need to plan our annual holiday, how much we are planning to spend on it. Plan the amount we want to spend on luxury items etc. Then we need to keep an amount out and save it every month until we are in a position to take the holiday we want without maxing out our credit cards. By saving and earning interest on our savings we will have a few Rand extra for our holiday rather than pay it off over the next year and pay a few Rand more than expected because there was an interest rate increase.

To calculate how much you need to save for these items build a budget.

Sample budget for a new luxury purchase (eg: new lounge suite)

1. How much will it cost?

Purchase price: _____________
Delivery:       + _____________
Total Cost:
                       ============

2. How much will I receive?

Sale of old item: ______________

Nett amount required: 1 – 2 = _______________

3. Date I wish to buy the item: _________________
4. Date today:                         _________________

Number of months to save: 3 – 4 = _________________

5. Divide the Nett amount required by number of months to save and you will receive an amount per month to save.


Remember if you can’t afford to save that amount per month you won’t afford the repayments on the item anyway so you should not buy it. You should either postpone the purchase date or buy a lower priced item.

Now start saving, the greatest part about this is that once you have saved the amount per month for the number of months you decided on, you will purchase the new item and have spare cash!!!

You could spend that on spoiling yourself as a reward for saving instead on lending, for example if you bought a new lounge suite, you may have enough to buy a few throw cushions to match and your lounge has a make over!

Sample Holiday budget:
Total Cost:

Accomodation:                 ________________
Traveling expenses:       + ________________
Food allowance:             + ________________
Special trips/excursions:+ ________________
Treats:                          + ________________
Total cost:
                                         ==============

1. Date you plan to go on holiday: _____________

2. Date today:                               _____________

3. Number of months to save: 2 –1 = ___________

Divide total cost by nr of months to save and you get your savings per month:

Once again remember if you can’t afford to save this amount you can’t really afford the holiday, rather save the extra few months and go later, or scale down the holiday by camping or staying in a self catering resort, you will then have a little spare due to interest earned as opposed to paying interest on your return, once again treat yourself, buy a new swimming costume for the beach or stay 1 night in a luxury hotel. Remember, you will have more money than what you saved as opposed to paying more for the holiday than it cost, this means treats are the order of the day.

Student Bank Account Comparisons:

Suddenly you turn 19 and find yourself in the unreal adult world. You receive a letter in the post informing you that you should visit your branch and supply proof that you are either still a student or have completed high school. You must also bring your ID book and proof of residency. If you don't visit the bank your account will be closed.


You head off to the bank and they inform you that you are not longer eligible for a children’s account but that you need to change you account to a Student account as you will be studying next year.

You will now have to pay bank charges similar to an adult account and can get access to a credit card and overdraft facility. Whoa…wait a minute, an overdraft facility? Credit card? You only get pocket money, you have not even entered the workforce yet!

The biggest question is which account you should choose, which bank to deal with and what benefits you get from each.
I decided to compare bank accounts from the 4 major banks for this, the student level this time but I added Capitec bank, the Newbie bank that advertises a higher interest rate and lower charges. The only difference being that the 4 major banks supply cheque accounts while Capitec is a transaction account. Lets do the comparison:

Click here!

I would choose ABSA after all the considerations even though there is not interest. I would open a separate saving account to earn interest and take advantage of no transaction fees as ABSA has the most widely spread ATM’s.


Making use of either the overdraft or credit card is probably not advisable at student level and I would make sure that those services are kept for a later date.

What to do when you get a bonus or windfall?

It is that time of year again, when the lucky one’s will be receiving their Christmas bonus. You have probably already spent the money in your mind. Hopefully only in your mind and you haven’t already purchased something that will need to paid when your bonus is due!


Bonuses don’t come along everyday. As an employee you will generally get an annual bonus or a 13th cheque. Usually this comes in December, which gives added pressure to using it to pay for that awesome holiday or buy the kids those much wanted toys or video games. Maybe spoil yourself!

But you need to take a step back. These bonuses don’t come along everyday and yet these small windfalls could be used to get you financially secure for the rest of your life! You just have to decide to use them wisely.

So what is wise you may ask….

1. Putting this lump sum in the bank?
2. Paying it into your mortgage bond?
3. Settling an account?
4. Adding it to your retirement saving?
5. Investing.
6. Spending it on something (hopefully a large purchase) you want?

1. Placing it in the bank:


Sadly in this day and age the bank is not really the best place for you to save your money. The interest rates are low even on fixed term investments and the temptation to spend the available balance in your bank account is way too high for most of us to stand. If you do choose this option make sure it is an interesst bearing account you can't withdraw from for a fixed period of time.

2. Paying it into your mortgage Bond:

Placing the amount into your bond would be a wise decision, the total bonus will then be taken off your capital and your bond repayments will decrease permanently, any future interest rate hikes will have a lower effect and your property will be paid for in a shorter period of time.

If you fix your repayment amount to the current amount you pay your loan will be paid off in record time!
If you have other debts, however, this may not be the best option as the interest rate on your home loan is lower than other loans.

3. Settling an Account:


If you are paying down debt this may be one of your best options. You can settle a credit card, close your store account, pay off a personal loan or rid yourself of that pesky overdraft. These are high interest debts that you don’t need. The year ahead will look much brighter if you are able to save a little instead of live month to month.

4. Adding it to your Retirement:


Using the windfall to top up your retirement policy is another good option, we tend not to save enough towards retirement and an added capital injection would bring the policy payout up and turn it into a more inflation beating policy. Helping to ensure you retire without worry. The added advantage of this option is that on most retirement policies you are not taxed on the payout.

5. Investing

Starting an investment account for the stock exchange – risky but if you are young enough this option could end up being very profitable and help you realise your dreams. If you are a little older and more conservative but still want to invest, try a mutual account or purchase some unit trusts. Remember the key investment strategy is diversity! As the saying goes, “Don’t keep all your eggs in 1 basket”

6. Spending

If you were planning on making a big purchase using this to pay for it as a cash purchase as opposed to buying on credit is another option, not as good as investing but better than obtaining further credit. Perhaps you really need a fridge for your new apartment or your washing machine just gave up the ghost. Either way avoiding the debt trap is better than paying the extra interest!

Making the choice:


Deciding what to do with your windfall is dependant on your current position in life. Your past decisions and your future dreams will play a role. Choosing wisely can save you a pretty penny in the long run.

The worst thing you can do with a windfall is spend it on small items here and there. It disappears faster than you can say you had it. I use this trick for my bonuses and windfalls and it never fails:

Deposit the money into a saving account and do not touch it for 30 days.
If you keep it in the bank for the full 30 days you will have dreamt about what you should be spending it on or where you should be saving or investing it. You will have looked at your options, determining the consequences of each choice and you will make a wiser decision.

Bank Fees: Kids Saving/Transactional Accounts

“All under 18’s bank accounts are equal.” Well that is what I thought. Surely they don’t charge management fees to a child! Can I not deposit the coins my child has saved for months in his piggy bank into his account for free? Doesn’t everyone give a good interest rate to children to inspire a culture of saving from a young age?


If you are anything like me, you have never shopped around looking for the lowest rates on your bank account, especially not on your child’s bank account. If your child has a bank account you probably did what I did and opened an account at the same bank you currently bank with. But is this always the best decision?

This morning I received a statement on my child bank account and was shocked. He had paid a monthly account free, a cash deposit fee and an ATM withdrawal fee. These fees totalled: R 54,50. For a child of 9 years of age I felt this was a lot. He also has a balance in his account of over R 2000.00 and earned a measly R1.90 interest.

In these times where a poor saving habit is a culture, it should be more important than ever to encourage our children to save. After speaking to the call centre consultant at the bank I decided to compare under 18 bank accounts to find the best deal for my child.

I have drawn up a comparison table between the 4 major South African banks. I have not included all the fees as most of these fees would probably never be charged on this account. I have only added the most commonly used fees and interest rates, omitting items like dishonoured cheques (most children do not have cheque book) and R/D cheque returns (Most children do not receive cheques from anyone). Telephone and Internet banking fees (can your under 18 really perform complex transactions?) Debit orders (under 18’s don’t have credit accounts) etc.


So for basic banking fees that your child will probably use:

Click here!

From my rankings I have decided on the Standard Bank sum1 account. Even though the fees could be higher if the account is misused, the interest rate is much higher.

Transactions limits for my child are set at:

• 1 Cash withdrawal a week.
• Piggybank saving deposits are limited to R100 once a month.

This seems reasonable and ensures R0 bank charges with an interest income of 2% on savings! Seems to me the best of both worlds.

Saving Tip #5: Everyday changes

Learn to bake….this sounds crazy but baking from scratch at home is both fun for the family as well as a cost effective way to get treats without the sting of the high prices. Don’t use premix packets as they are much more costly than the basic ingredients.

Learn to cook….yes I know you cook every evening. But try not to use instant meals from a packet or box as these are very expensive. Rather try a few recipes, swap with friends, look up the recipes on the net. It takes no longer to make spaghetti bolognaise from scratch than from a box but costs half the price, as does, chicken a la king, beef stroganoff or a stew. Use packets of soup for casserole bases as these are cheap and have similar spices to the box meals.

If you live in a complex or are friendly with the neighbours try starting a dinner club, where everyone meets at one person’s house for supper on a rotational basis. It is cheaper to feed many and you don’t have to cook every night. It is also a cheap way to socialise to boot!

Buy in bulk! Coke wholesalers, Makro, Trade centre among other offer great discounts on bulk purchases. Take advantage of specials and split the spoils and the costs with your friends and family.

Take your supper meat out the freezer in the morning and leave it in a bowl inside the microwave (to keep flies away and stay out of direct sunlight) to defrost. When you get home you do not need to run your microwave to defrost your meat.

Fix any water leaks immediately, a dripping tap can use up to 420 litres of water per year. To test for a water leak, turn off the stopcock and see if your water meter is running, it should not be.

Switch off your stopcock on the incoming water pipe if you go away. If any leaks occur or you left a tap dripping this will be of no consequence and won’t increase the cost for your vacation.

Obey the road rules. Traffic fines are an expensive unforeseen cost that if left unpaid could land you in jail. The 2 minutes you saved skipping the stop or speeding can never make up the cost of a fine.

Save for luxury purchases. Do not charge them to your credit card. If you don’t pay interest on the luxuries you buy, you can save between 17% and 25% of the cost of the item.

Pay all accounts on time! I cannot emphasis this enough. Late payment fees, interest, penalty interest and administration fees add up. Not to mention how much more you pay if you are handed over to a lawyer for collection.

Extra penalties are charged on some accounts: E.g. Electricity, there is interest on overdue amount, R 25 final notice fee and R 150 reconnection fee if disconnected. That starts to add up and is probably the equivalent to a month’s water bill.

If you cannot meet your monthly instalment, phone your creditor. They are more likely to help you if you called them rather than the other way around. They may even waiver some penalties and interest if you make a firm arrangement and stick to it. They just want their money after all.

Don’t under estimate the power of a phone call. Call every credit card supplier and ask for a reduction on your current interest rate. Use the fact that you have been a longstanding client of theirs or that you pay more than the minimum balance every month to your advantage. If your credit record is good, tell them you have been offered a card at a lower interest rate, most suppliers will match that rate.

Not all these saving tips will apply to everyone, you may already be using some. But if you are not, it’s never to late to start. Be creative with money saving ideas, try to use your savings to create further savings. If you are conscious of saving money you will be amazed at how quickly you can become debt free.

Saving Tip #4: Staff

Domestic Worker


Most people here in South Africa have a domestic worker. I would never tell you to get rid of her as most of us need help with the house, especially with a full time job. Not to mention the emotional attachment you build with the lady who washes your underwear, but do you really need her everyday? Try cutting it down from 5 days a week to 3 days per week, just to do the big jobs like ironing and washing the windows etc.

To make up for the lost employee without working yourself into the ground try this:

Rope the kids into helping when she is not around. How? I hear you say:

• Make your own bed and make sure your kids make theirs too (good pocket money chore).
• Clean the bath when you get out or better yet, let the kids bath with bubbles or take a bubble bath yourself. (You can wash the bath half as often)
• Wash the dishes as a family after supper. One person stacks, another washes, one wipes the sides etc. Leave the dishes to drain, you can pack them away while you are cooking the next meal.
• Check that the kids have hung up their towels after bathing as well as their school uniforms when they get home.

These should help get you through the 2 days a week you have no help.

If you save R 180 per week you are essentially saving R 720 per month. If you use half of that saving to repay debts and save the other half you will never look back.

Garden service


During winter you should request your garden service to come fortnightly instead of weekly, this will half the cost, when the lawn does not require mowing.

Baby Sitter


If you are serious about saving you should already be decreasing the number of evenings you are going out. If you still need to go out occasionally or have to work an evening shift try this.

Offer to swap a babysitting shift with your neighbour. You will sit for them one evening and they can sit for you one evening. You can build up a sitting club along your road or within your complex. Your children can play with the neighbourhood children instead of being at home alone and never have to hire a sitter again!

Saving Tip #3:Vehicle

Lift clubs

• Set up a lift club if possible, it could even be just for dropping kids at school, E.g.: You drop and collect the neighbours kids on Monday and Thursday and they drop and collect yours on Tuesday and Friday. Every other Wednesday you swap. Save the extra 3 kilometres to the school 3 times a week. If you save 3 km’s 3 times a week you save 36km’s in a month which equates to 3 – 4 litres of fuel, not to mention wear and tear.
• Plan your trips so you don’t end up going twice in the same direction.

Vehicle Maintenance

• Service your car regularly, an unserviced car uses more petrol.
• Check your tyre pressure, under or over inflated tyres use more fuel.

Driving Tactics

• Drive with your windows closed. A slightly open window causes drag and increases your fuel usage.
• Stick to the speed limit – this is usually the most efficient energy saving speed for most cars (speed limits were after all introduced to help save petrol during the fuel crisis)
• Don’t accelerate fast or brake too hard. Both these practises increase fuel consumption. Rather try to stick to a constant speed.
• Only put petrol in your vehicle in the morning. Petrol expands with heat and thus when warmer, the pump will read 1 litre even though it has pumped just less than 1 litre of fuel.
• Never let your fuel level fall below half, evaporation increases when the tank is less than half full.
• When filling with fuel always ask the attendant (or take care for yourself) to fill the tank to the automatic stop only. Many people overfill the tank and when driving around corners suffer fuel loss. Look under your fuel cap, you will see the leak if you have overfilled. Not only that, much of that fuel stays in the pipe but has been charged for giving the next customer free fuel.

Walking

• If you need to go to the shop on the corner, take a family walk, not only is it good for money saving on fuel and wear and tear, but good for your health, weight, fitness and it gives you that hard to find quality family time. Last week we counted how many steps it took to walk to the shop, my little one learnt to count to 100 on the trip too! You can talk about colours, rainbows, clouds, road rules, road signs, shapes, anything, it becomes a learning excursion and the kids thrive on the attention paid to them, not to mention how great you feel for taking the walk and the saving on the environment!

Insurance

• Re-evaluate your insurance every year. Insurance companies never tell you that they are paying out less every year, but they put up your premium every year. Call your local car dealer, if you drive a Mazda call them, Toyota call them etc. ask for the book value of your vehicle (have the make, model etc with you) then call your insurance company and ask them to adjust you insurance policy to pay out the greater of the book value or the amount owed to the bank under finance. Your premium will most likely decrease, giving you a free saving. Remember to do this annually, close to the beginning of the year as this is when book values are established.
• Top up insurance is one of those great necessities in life. However, they only have to pay out if something happens and there is a shortfall on your normal insurance. Check with your insurance, there comes point where your ordinary insurance will be sufficient to cover what you owe to the bank. Remember you need top up insurance as long as the value of the car is less than the amount owed under finance. After that it is an unnecessary cost and you can cancel it without the loss of benefit.
• Check the price of insurance if you increase your excess amount…this sounds scary to some people but you can save up to 50% of the premium by increasing your excess. If you have a savings pocket or emergency saving fund, the extra excess with be no problem and you will save substantially on your premiums per month.
• Shop around, your insurance premium can vary considerably from company to company.

Saving Tip #2: Electricity

This is one of your large unseen expenses, especially with the latest increases and the expected future increases. You don’t always realise how much you use, and any saving in this department would be a good saving booster, not to mention an environmental saviour. Here is how to limit the amount of power you use.

Cooking

• If you need to get boiling water on the stove, boil the kettle and pour it into the pot, you will use 50% less power.
• Use the minimum amount of water in the kettle when you boil it. You do not have to fill the kettle every time you make a cup of coffee.
• If your fridge is empty, or close to empty, place a few bottles of water in it – these items store the cold and help keep your fridge temperature constant (it turns on and off less often thereby saving electricity).
• Also place water bottles near the top of the fridge, cool air travels down and will keep the fridge colder for longer.
• Break the habit of opening the fridge and staring into it undecidedly, this is a major electricity expense.
• Reheat food in the microwave, not on the stove.
• If you are cooking in the oven, place the food into the oven as soon as the light switches off, also keep the door closed as the heat escapes quickly.
• Use a pot which is the same size as the stove plate. Putting a small pot on the big plate wastes energy.

Vampire electronics

• Ensure all standby items are switched off at the plug, eg TV, DVD, Cellphone chargers, laptops, stereo’s, plug adaptors etc. These appliances use approximately 4% of your total electrical bill whilst not in use. To spot a vampire appliance look for a standby light or a remote.
• Switch off lights whenever you leave a room, be consistent with your children, if you complain because they left something on every time and make them return to switch it off, they start to remember to do it.
• Swap all your light bulbs for either LED globes or CFL globes, these draw 50% less power. They cost more initially but save in the long term as you only have to replace them every 5 years.
• Put outside lighting on a day/night switch. You only need the lights after dark after all.
• Add a timer to your pool pump. Your pool will stay blue with as little as 4 hours running time per day. Remember to run the pump outside of peak hours to avoid maximum demand rates.

Washday

• Hang your washing on the line instead of using your tumble drier. If you hang items correctly you can avoid ironing many cotton items.
• Only switch on your washing machine for a full load, a half load uses the same amount of water and electricity.
• Towels do not need to be washed daily, give each person in the house their own towel to use and hang up immediately, you can then wash them less often.
• Your iron draws a lot of power to heat up. Make sure you iron in batches, not 1 item at a time.

Heating

• Put a geyser blanket on your geyser.
• Switch off your geyser when you go to work, you don’t need hot water while you are not there, don’t forget to do it when you go on holiday.
• Add “Aerolite” in your ceilings to keep the temperature in your house stable. It will save on cooling in summer and heating in winter.
• Open any north facing curtains in winter, it will warm the house considerably.

Saving Tip #1:Shopping

Never shop without a shopping list.

Buy what is on the list and give yourself a small reward for sticking to the list. E.g. 1 item not on the list only per shopping trip. To make a list for the first time takes a little effort, but here is how to do it…

• Decide on the number of meals you eat at home in a month. Usually 1 meal per day.
• Split your list into categories, the isles in the shop are normally set out in this way too. Frozen foods, fridge goods, grocery items, snacks, cleaning materials, bathroom items are all excellent section headings.
• Tick off items as you add them to your trolley.

Shopping list guide here!

Shop less often

Buy for the whole month on 1 trip and by bread and milk weekly not daily. Every time you enter a store you are tempted to buy something extra, limit your excursions. This saves petrol too!

Dealing with Kids in the shop

If your children ask for sweets at the shop, tell them to spend their pocket money on it, they will quickly realise sweets actually cost money and will limit their spend for themselves. Buying sweets daily at the shop is an expense you should not be incurring.

Bulk Buying

Buy in bulk….some places like Fruit and Veg city offer larger quantities for lower prices, sadly the product does not usually last too long. Shops like Makro sell bulk goods at prices your local shop get them at. Shop for your neighbours or family too, when you go shopping split what you bought and swap with your friends or family, they need to buy too and if you can pay the lower prices and share the cost you all win. Take turns at going to the store and splitting the food. Try different things to see what works best for you.




Lunchtime

Buy lunch box items so you don’t give tuck money, this is expensive….add a days tuck money per week to your child’s pocket money and ensure they use their own money when they want tuck. Pack lunch for yourself everyday as opposed to buying lunch, treat yourself if you do by going out for lunch or supper once a month.