We all know we should be saving. It is one of those things your mom told you when you were young, your teachers told you at school and certainly one of the things a Debt Counsellor will tell you if you go to them for help.
The truth is that you are not saving even though you know you should. Saving is very hard to do these days.
So we ask:
- Has it become impossible to save?
- Is it even practical to think about saving when you have lots of debts and are just struggling to make ends meet?
WHY YOU ARE NOT SAVING: BUDGETING
It is almost a universal rule that we all spend just a little more than we earn. Things seem to be more expensive now than ever before and the money we get paid hardly stretches to cover all our necessary expenses. And that’s before we even begin to look at all our scary debts.
One reason why you are not saving is that you do not have a good budget. Admit it!
Making a budget is a pain and makes you confront how scary your debt situation is. So, nobody likes to make a budget, even if it is a good thing to do. But if you don’t budget then you can’t effectively plan ahead for expenses you need to save towards.
WHY YOU ARE NOT SAVING: INFLATION
It is also true that things do cost more now than they did last year. These days just having work is a victory and expecting an annual increase is not always realistic.
Businesses are cutting back on salaries and employees not handing out increases and bonuses. So, keeping your job is probably more important than arguing over an increase right now.
Even if you do miraculously get a raise this year it is likely that it will be a smaller percentage increase than your cost of living has gone up. So, you might get a 5% increase while your rent goes up by 10% and your food bill goes up by 6%. What that means is less money in your pocket at the end of the day.
SAVE BY PAYING OFF DEBT
These days the interest you get from putting money into a bank savings account is often not that great. Few banks really reward you for depositing money with them.
That said, you might start banking with a bank that will reward you with a really great…7% interest on your savings account (which keeps you ahead of the interest rate right now) and be really happy with yourself.
At the same time, however, you may be sitting with lots of credit card debt which is increasing at 18%. So while you are making 7% on one side (your savings) your debt is growing by 18%.
You can quickly see that paying off your debt to stop it from growing would actually end up saving you a lot more money over time than setting funds into an account and your savings only growing a little.
So, getting rid of your expensive debts is actually a great way of saving yourself money over time. But what about the normal type of saving?
WHY YOU NEED SOME SAVINGS
If you have entered debt review then a Debt Counsellor will help you make up a budget (you know, the one you kept meaning to make up). They will help you figure out what is realistic and sustainable*.
A big part of a budget is figuring out what you need to cover each month. These are called your running costs. A good budget is also designed to take into account things that you
only pay once a year (annually). These might be things like school related expenses for your kids or annual obligations like your car license or TV license (yes, you should be paying that).
A good budget will also include some things you may have forgotten to take into account such as saving towards new tyres every so many Kilometers or the regular servicing your car at certain intervals (if you own one) or even setting funds aside to cover your insurance excess should it be needed.
Normally, people who enter debt review have already cut all these types of savings to try to just make ends meet and this is why they become so vulnerable to sudden issues to do with unplanned medical bills or broken appliances or accidents.
If you have no access to endless credit (like once you start debt review) then you cannot just reach for the credit card again if something suddenly comes along. You need to have the funds already sitting one side.
* If you deal with a Debt Counselling firm that simply tells you that your new total budget figure is just X but gives you hardly any details of how that is made up, then you should ask for a much more detailed breakdown from them. Find out exactly how they think you should be spending your available funds each month. Everything from groceries to medication should be included. This is a vital part of making your debt review actually work.
YOU CAN SAVE
So, it is important to have some funds set aside in advance for either a rainy day or regular annual expenses. How can you do this?
If you are in debt review then your Debt Counsellor will have worked some savings towards annual costs into your monthly budget. The trick is to actually follow through and set the funds aside each month before you spend them on other things.
With the advent of savings pockets etc, you should be able to do this with minimal effort by clicking a few buttons on your banking app. If you are not making use of a banking app then you may need to go old school and transfer funds from one account to another. Alternatively, you may be hiding money under the mattress (don’t do this).
Whatever the case, you should move any funds you have in your budget for savings first, right after you get paid. Do not plan to do this later in the month or there will be nothing left, guaranteed.
HOW MUCH SHOULD YOU BE SAVING?
It is unrealistic to think you will be able to save a lot of money when under debt review. Rather we are talking about regularly saving a little something.
Once again you should go back to the budget drawn up with the help of the Debt Counsellor. It will serve as a guide. Your Debt Counsellor will have added up all your annual expenses and divided them by 12 (approximately).
DOES YOUR BUDGET NEED TO BE ADJUSTED?
If that budget was done some time ago then why not go back to the Debt Counsellor and ask for some help to update it? As your cost of living changes, you will find you will need to relook at your budget from time to time.
If you find that you are not able to set aside the saving amount calculated by your Debt Counsellor then you need to seriously look at changing your other expenses.
This may involve changing what you are buying at the shops or how much you are spending on transport, communication or other costs. This can take effort and may require you to make even more adjustments than you did at first when entering debt review.
Here we are talking about making moves to stay with family, changing service providers, renting out rooms and other big steps. Though not easy to put in place, it will help you stay within your budget.
Your goal is to get rid of your debt entirely and be debt-free, this might be complicated and sting a little but it will be worth it in the long run.
SAVING WHILE IN DEBT REVIEW IS POSSIBLE
Remember, each time you make a payment towards your debt through debt review you are actually saving yourself a lot on fees the credit providers are not charging and interest rates they have probably lowered.
You may also find that with things getting more and more expensive over time you may feel tempted not to save anything. You may eventually need every cent possible to cover your increasing everyday costs. If this is the case then you seriously need to look at your
monthly running costs and make some more big changes to cut them. Ask your Debt Counsellor for help.
Often the key is as simple as:
- knowing how much you need to save each month and then
- setting those funds aside right away once you have been paid.
Even if you have not been saving up till this point, why not start this month? As they say: “better late than never”.