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Monday, 8 April 2013

Commit to a good savings plan

The only way anyone really saves money is to spend less than you make. It’s a simple equation that many people have a difficult time following. Even when I began working and making money, I never changed my spending habits. I could afford to have bought a new car, yet I used that money to invest in businesses and the stock market. I continued to live as though I was on a tight budget – and along with this key rule, these are the other values I’ve kept to build and grow my wealth slowly. Follow these money rules and maybe 2013 will be your best financial year yet.
1. Educate yourself on proper Investing
* Have the right account: Never keep all of your money in a bank checking account that earns little or no interest. Check online for accounts offering a higher yield, as well as accounts that will not charge you ridiculous maintenance and other transaction fees. Many banks like Capitec  have low transaction fees and attractive saving interest rates compared to other banks.
 * Have a retirement account: The younger you start, the better. Make the initiative to learn the best option for you, and take it. If your company offers any kind of contribution match – I’d grab it! It’s free money!
 * Get automatic: Set up automatic transfers to a savings account earning high interest so that you can start effortlessly saving money.
 2. Learning where to put your money (and in what order)
* Always pay your debt as soon as possible. Follow the Debt Snowball Method so you slowly chip away at the debt you have. 
* Build an emergency fund. The rule of thumb is at least three months salary.
* Invest in the stock market. Look at cost effective ETFs like Satrix (www.satrix.co.za). Over the long term Satrix has provided better than average returns and outperformed other savings vehicles.
* Lastly fund your retirement and put the rest in a high interest saving or checking account.

3. Having a positive outlook on money
* Create goals: Figure out an amount you want to save and write it down. Once you have that goal, figure out how you are going to attain it. Cutting costs? Extra work? Selling some of your things? A book I really love that I’m reading now is Think and Grow Rich by Napoleon Hill. It’s the concept of knowing and believing that you will attain riches will help it to become a reality.
* Stay positive: Don’t get in the mindset that whatever your situation happens to be means that you will never be able to attain wealth. Maybe you lack formal education or you have a low paying job. You can’t continue to blame outside factors – it is in YOUR power to change your situation, and staying positive and knowing that you are capable of having the lifestyle you desire will attract that into your life.
This year, start taking control of your finances. Commit to a savings plan. Stop buying things you don’t need or can’t afford. Try to automate at least 15% of your salary to go into your savings account every month. I like to think of this as paying yourself first. If 15% sounds like too much, decide on a amount of each paycheck you can afford that can go into a savings account as soon as you earn it. This way, you won’t consider yourself having those funds to waste on unnecessary purchases.

Its very important to mentally condition your mindset to pay yourself first. So for example, you earn R10,000 in salary every month, and when payday comes around, have 15% (R1500) of your salary automatically transferred into a savings/investment account . Pretend like that money never exists. Thats a potential R18,000 stashed away per year with little or no effort. Now continue to live the rest of the month as though you're earning R8500 (R10,000 - R1,500). With annual increases in salary and inflation, simply repeat the same exercise. You’l find that over time you would have build up a significant nest egg just by simply automating your savings plan.  It's the easiest way to save money.

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