Sandwiches, smartphones and the seven-day rule.
The cost of living rises every year as the price of fuel, electricity and retail goods climbs — meaning that our pockets are ever more painfully pinched. Here are some tips from Barry O’Mahony, founder of Cape Town-based financial planning firm Veritas Wealth. Craig Torr, director and co-owner of financial planning firm Crue Consulting, also has a few tips to help your kids save money. Follow this handy advice and keep your head above water in 2015.
1. Know where your money is going
It’s crucial to understand where you’re spending your money. Draw up a budget to understand where and how your money is being spent, and write down every single thing you spend on, no matter how small. That way, you can make sacrifices in certain areas and use the surplus to pay off debts quicker.
Take your daily sandwich allowance, for example. Times a daily R20 by 20 (assuming you’re working five days a week) and suddenly you have a hefty monthly lunch bill of R400! Make your own sandwiches at home or cook a bit extra the night before.
2. Car pool or catch the train
Lift clubs are a great way to reduce your fuel spend (and do your bit to help preserve the planet for your great-grandchildren). If you live near safe and reliable public transport options, such as the Gautrain or Cape Town’s Metrorail, those offer another means of saving on travel costs.
3. Pay your debt off now
With current low interest rates, debt should be paid off as quickly as possible, in case interest rates rise, along with debt servicing costs. ‘Pay off debts with the highest interest rates first, then go from there,’ O’Mahony says.
4. Stick to the seven-day rule
Institute the seven-day rule with your kids. Once they decide that they want to buy something, take them to have a look at the item, without the intention of buying it. A week later, after assessing the costs (for instance, how many weeks’ pocket money will a new xbox game amount to?), go back to the store and make a final purchasing decision. Help them understand what they’ll miss out on if they buy the item — perhaps movies with their friends, or that new pair of shoes they were eyeing?
5. Create off-ramps
‘Create your own off-ramps,’ says O’Mahony ‘and fool yourself into making better financial decisions.’ The best way to save as a salaried person is to set up a debit order into a savings account. That way you don’t have to decide to save every month, it just happens. Do things like automatically increase your pension fund contribution when you receive your annual salary increase, so you don’t feel the lack of extra cash as much. Changing behaviour is a lot more difficult than creating an in-built off-ramp on your financial planning journey.