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.