It’s hard, isn’t it? Saving money.
Just kidding. Saving money is easy as long as you follow the three golden rules.
Best way to save money in South Africa
First, ‘save money’ can mean one of two things, So let’s start by defining what it means to ‘save money’.
Two definitions of ‘save money’ (both go hand-in-hand)
Saving money on expenses —this is when you ‘save’ on costs. Think discounts, cheaper alternatives, and cancelling Netflix.
Saving money for the future —this is when you ‘save’ by putting money away or investing.
The best way to save money combines both. Saving money for the future gets easier when you save on expenses. So let’s marry both definitions of ‘save money’ to create a simpler three-step strategy that’ll help anyone to save more.
3 Steps that work together (the 3 golden rules)
The best way to save money is to set a budget, save as much on expenses as possible, and then save/invest as much as you can comfortably afford. Do this for an extended period, and the savings will grow (on its own in some cases).
Here’s how we’ll define the three steps:
- Set a budget,
- Save money on expenses,
- Save and invest (for the future)
Doing all three guarantees the best results. The steps go hand-in-hand to help improve the results, so put them together.
Besides, we will share a hack or two you can use.
First up, setting a budget. This step is crucial, and it doesn’t have to be complicated. Let’s check it out.
Set a budget
A budget is an outline of how much money you expect to earn and spend over a specific period of time.
It’s an overview of what is coming in (and from where), plus what is going out (and where to).
Define your budget using a system that works for you. Here’s how most people do it:
- Write it down— somewhere you can find it later. Perhaps in a journal.
- Use spreadsheet software — like Microsoft Excel or Google Sheets.
- Use a budgeting app — tons of apps make it super-efficient.
- Use an envelope system — an old-school approach that involves allocating funds and placing them in separate envelopes.
Follow the usual advice on this one: Find what works for you.
Why is a budget so important for saving money?
Knowing where money is spent and earned is the key to cutting costs, earning more, and ultimately saving money.
A budget makes it possible to calculate how much money you can save:
Income – Expenses = Savings
Here’s an example:
Income = R20,000
Monthly expenses = R15,000
Therefore: R20,000 – R15,000 = R5,000 potential savings
Make your budget as detailed or as simple as you’d like. Just make sure that it is accurate.
Here is a list of categories you could include:
- Income — money that is coming in (including bonuses and side hustles),
- Fixed expenses — things like rent, insurance, car repayment, etc.
- Variable expenses — utilities, groceries, entertainment. These are expenses that fluctuate from month to month.
- Debts — monthly debt bills for credit cards, loans, etc.
- Savings — you can add several sub-categories for emergency savings, retirement, and savings goals.
- Other expenses — costs that don’t fit in any of the other categories.
Tip: you can look at your bank account transactions if you’re unsure how much you spend and where you spend it.
With a budget in hand, let’s move on to saving on expenses.
Save money on expenses
Setting up a budget can be eye-opening. Did your budget reveal any crazy expenses?
Start by reviewing the budget and identify expenses to reduce. It’s possible to save money on expenses without sacrificing quality or necessity. Dig into it to see what opportunities you can find.
Common ways to reduce expenses include:
- Finding better prices — this includes groceries, household items, and things like insurance.
- Controlling lifestyle spending — eating out, entertainment, subscriptions, you know what we’re talking about.
- Reducing transportation costs — try carpooling, using public transportation, or getting a more fuel-efficient vehicle.
- Reducing energy costs — switching off those lights and turning off the air conditioner.
- Refinancing your car
- Negotiating bills
It’s actually super simple. Lower expenses = higher potential savings.
Another big expense that holds back most South Africans is debt. Debt bills tend to accumulate and eat into the income. Sometimes, there’s a complete imbalance between earnings and expenses. Making it impossible to save any money.
With this in mind, it’s worth starting with debt bills first if they’re a problem. You see, debts accumulate interest, and over time, interest costs a lot of money. Several thousand to hundreds of thousands, and even millions depending on the amount of debt.
Struggling to keep up with your debt?
Our team can help make your debt affordable once again.
We help thousands of South Africans to reduce their monthly debt repayments, protect them from legal action, and keep their assets — our team can help you too.
Plug: Services like debt review make it easier to repay monthly debt bills by reducing the instalment — if you want to learn more about debt review, try our assessment to see if you qualify. An expert on our team will tell you all about it.
Next up: saving and investing.
Save and invest (for the future)
✅ Lower expenses = higher potential savings
➡️ Savings and investments
Finally, we’re ready to start saving.
There’s an interim step that we need to mention here. Now that you’ve reduced your expenses, you must readjust your budget.
Income – New reduced expenses = Higher potential savings
Now that you know how much you can save each month. Define your savings sub-categories and make sure to ‘pay yourself first’. This means depositing, transferring and investing the money that you allocate towards savings as soon as you get paid. Pay yourself (by saving) before you pay anyone else (by spending).
Popular savings sub-categories may include:
- An emergency fund,
- Retirement savings,
- Saving for goals (education, deposits/down payments, etc.),
- Travel savings
Decide how much you want/need to save in each category. Start with your most important goals and work backwards from there.
While saving money is awesome, just putting away cash is not a good idea. The value of money depreciates (gets less) over time. So money should be invested so that it can grow (hopefully faster than costs rise).
Here are a couple of ways to invest.
Save like a pro by investing
- Start an emergency fund — emergency funds protect you from making debt or ‘cashing-out’ investments to pay for unexpected emergencies.
- Invest in a retirement fund — SA has the Government Employees Pension Fund (GEPF) for public sector employees and the Retirement Annuity Fund (RAF) for private sector employees. Check ‘em out.
- Open a tax-free savings account — tax-free savings are amazing, and everyone should use them to their advantage. Here’s how tax-free savings accounts work.
- Consider investing in a mix of assets like property, low-risk investments, and stocks — do your homework and find what works for you/suits your budget.
Budgeting, saving money on expenses, and saving for the future are all part of the process. A winning formula for saving more money.
Remember your goal and start the process as soon as possible.
If you find that debt is holding you back and needs addressing so that you can save more effectively — contact My Debt Hero, we’re pros at making debt more affordable and helping South Africans to become debt-free.