We all know we should save for our future, whether it’s for retirement, our kids’ education or a rainy day. But why is it so hard to stay committed to good savings?
By Kenosi Magosha
We live in a consumerist world where it’s easy to get swept up by constant urges to have what others have – always being on the hunt for the next big thing,” says Kenosi Magosha, Head: Client Solutions Savings at Sanlam.
“We spend money on these ‘wants’ first and savings last because spending is instant, visible and tangible. But the only way to make savings work for you, is to pay yourself first, not last, otherwise you’ll never have any money left over for future goals and opportunities.”
Self care vs. self-sabotage
“Your future is just as important as the bills you have to pay now. ‘Future you’ also deserves to be looked after. Think of saving money as a method of self-care. You are affording yourself opportunities in the future, whether it’s to start a business or to live comfortably when you can no longer earn a salary. If you don’t save, you’re actually limiting yourself. Don’t sabotage your own future.”
What is ‘pay yourself first’?
Paying yourself first is one of the oldest rules of personal finance. As soon as your salary hits your account and you start paying bills, you should set money aside for savings or paying debt. How you pay yourself depends on you – it can be a percentage of your salary or a small amount.
Magosha warns about a ‘giving mentality’. “Giving to others instead of ourselves gives us an immediate emotional benefit of feeling appreciated. But if we channel this generosity into our own savings, we can provide for others for years to come.”
4 Steps to ‘paying yourself first’
1. Invest in ‘future you’
‘Future you’ deserves to be paid as much as the school fees, the phone bill and the alarm company. By paying yourself first, you’re mentally establishing saving as a priority. Setting aside money each month to grow your harvest of the future, so to speak, is empowering. It will help you maintain and improve your lifestyle over time.
How to do it: Relook your budget so you know exactly what’s coming in and going out, and so that you can list yourself as a bill with your other expenses. “Automate this payment as much as possible, whether it’s a contribution to retirement savings going off before you get your salary, or a monthly direct debit,” suggests Magosha.
“If you pay yourself manually, it’s normal to have feelings of pain and loss. But if you never see that money, you’ll surprise yourself with what small, regular amounts can become over time,” says Kenosi.
2. Empower yourself with information
Knowledge is power and if you’re going to pay yourself first, find a method that works for you. Just as you would put a lot of research into the right exercise or health regime for your lifestyle, find a method of paying yourself first that is doable and sustainable.
How to do it: “Focus on spending less each month and banking the difference. You could also get a side hustle and put all of your profits towards your savings, separating your salary from your extra income,” says Magosha.
3. Get financial advice
“It can be hard to know what to focus your savings on. Of course, you may also need to save for a house or a car, but it’s important to take a holistic view of your savings,” cautions Magosha. “Talking to a financial planner about your savings and financial objectives can help you strike the right balance. It can help you plan for all eventualities that you may overlook on your own.”
How to do it: Don’t be shy to ask for help. “We usually get things done when there are other people to hold us accountable. Look into setting up a social savings group with a tax-free savings account and you’ll not only keep one another motivated, but also enjoy lower fees.”
“Research has proven that people who invest money with very specific goals save a lot more over the long term”
4. Make your savings goals extra visible
“As Behavioural Economist Dan Ariely points out, when we invented money, we made spending very visible, but we made saving completely invisible. That’s something we need to change, and having very clear savings goals will help,” continues Magosha. “Research has proven that people who invest money with very specific goals save a lot more over the long term. It’s about retraining your mind to focus less on the now and more on the future.”
How to do it: Be very clear with yourself what your savings goals are. It’s good to have short-term and long-term goals. Give each goal a name, an end date and identify what each goal means to you personally. Make these as visible and specific as possible.
If you want to live in a different country one day, put up photos around your house as motivation. Use an app to see how your savings are growing or create a colourful progress chart.
3 Ways to spend less
1. “The world is making it easier to get around without cash, but we should make our money more visible – not less,” says Magosha. “We should put limits in place to help ourselves think before we spend. Try the ‘envelope method’ for a week: only spend cash you’ve budgeted for that week. You’re bound to spend less.”
2. “Try to curb emotional spending, for example buying a new piece of tech because you feel bored or sad. Replace that with something else, like calling a friend.”
3. “Try to stick to one big shop a month and only one top-up shopping trip per week. The less time you spend at the shops, the better for your bank account.”
It’s important to be honest with yourself about the difference between self-care and self-sabotage
Take care of the future you by setting clear financial goals. Consider consulting a financial planner before you make any big decisions regarding your savings and investments.