Happybank

The Optimist’s Guide to Saving

July was Savings Month. By now you’ve probably seen hundreds of articles about of saving. I bet many of them were pretty bleak. ‘How to make that can of baked beans last all week.’ ‘Spray paint your clothes to make them look brand new.’ ‘Wash your hair with dishwashing liquid.’

That’s not a surprise. South Africa’s economy is not very robust at the moment, and we all need to learn how to get by on less. But making your rands go further shouldn’t be all about depriving yourself, but growing your wealth more effectively. As we say at My Treasury, there’s a wiser way to save.

Let’s look at five effective ways to protect and build your wealth, even in challenging times.

1. Make your money work harder for you

It costs nothing to earn a better rate from your bank. Millions of South Africans have money sitting in low-interest bank accounts. That’s a wasted opportunity.

When times are good, getting more out of your bank is a nice bonus. But when money is tight, every little bit can make a big difference.

Use the free My Treasury Savings Optimiser regularly to ensure your money is working hard for you

2. You can still have nice things, but you have to pay for them

When money’s tight, it’s tempting to take on debt to sustain the lifestyle you’re used to.That’s often a mistake, incurring extra financial pressure for no good reason.

Goal-based saving is an effective way to pay for little luxuries without hurting your household finances.

Of course, you may find you need to scale back to some degree. Instead of the annual family holiday to Mauritius, it may be prudent to visit a local hotspot. But with a smart saving programme, it’s possible to live your best life even during a downturn.

3. Be smart about taxes

Consider a tax free savings account. The investment won’t make you rich overnight, but in time, the tax benefit will contribute to a larger nest egg. Steadily growing your wealth in good times and bad is an important way to cushion yourself from the vagaries of the economy.

4. Don’t pay too much for your investments

Management fees eat into your returns. Over time, that can have a significant effect on the ultimate size of your investments. Study your investment fee structure carefully. Cutting out excessive fees could be a more effective way to grow your wealth.

5. Perform a personal insurance audit

There’s a sweet spot to insurance cover. Being underinsured puts you at risk of a serious financial setback. Policies such as unemployment protection and disability cover can offer crucial protection against financial ruin. Inadequate car insurance could leave you indebted at the worst possible time.

On the other hand, being overinsured is a waste of money. Carefully analyse your policies and consider how they all fit together. Be sure also to get quotes from competing insurers regularly to see if you can save on your monthly premiums. (Tip: be sure you’re making relevant comparisons. A cheaper monthly premium with a higher excess may not offer value. A policy from an unreliable insurer probably isn’t worth the risk.)

Safe and steady towards good times

Markets rise and markets fall. Sticking to a smart savings plan allows you to make steady progress growing your wealth in good times and bad. Two principles are key to weathering economic storms: maximise your money and protect yourself from debt. Now let’s look forward to better economic days.