How to save while living from paycheque to paycheque

Last updated on 12th December, 2017 at 04:38 pm

No matter how much people earn, many live just from paycheque to paycheque without having anything left at the end of the month. We show you how to break this pattern and implement a strategy of saving.

The first step to breaking this pattern is to understand where all your money goes every month. Try and keep a spending diary for a month; examine your debit orders and payments and then split them into three categories: debt repayments, essential expenses and non-essential expenses (such as entertainment, eating out, coffee, magazines etc).

Then critically examine each category to find ways to save costs – this is easiest done by using debt effectively and by cutting down the non-essential spending. Also, it’s important to rigorously analyse what you consider essential and non-essential items; for example, clothes are essential, but perhaps those designer sunglasses are not.

Lessen your debt

The first step is to separate good debt (house, studies) from bad debt (credit card and other short-term debt). Ideally, you should stick to only having good debt and using cash for all other expenses. Short-term debt is charged plenty of interest, so make it a priority to reduce your short-term debt. Then, the money that used to go into debt repayments can either go to pay good debt or go into a savings fund instead (to create an emergency fund).

Cut down on non-essential expenses

Most of us have quite a good idea of what our essential expenses are every month, but typically we have no idea what we spend on non-essentials. Once you have written down your monthly expenses, decide which of the non-essential items are important to you, and what you are willing to give up. Small savings can add up to big savings.

For example, you may find that giving up one or two cappuccinos a week will give you enough money to start a tax-free savings account. Other ideas: bring your own lunch to work, evaluate your cellphone plan, use Wi-Fi calling (such as Skype or Whatsapp).

Look at cheaper alternatives that will give you the same reward; for example, if you eat out with your friends every weekend, you could replace one of these with an evening at someone’s house where everyone brings a dish.

Create a realistic budget

Make allowance for savings, but also for those things that give you joy. Be very aware of what you spend your money on; it is easy to spend a lot on little things you cannot even recall at the end of the month.

Always make a shopping list before you go to the shops – this will help you stick to items that are budgeted for and not get distracted. Beware of luxuries dressed up as necessities; it is easy to get stuck in a lifestyle that isn’t aligned with your actual income.

Save towards a goal that has meaning for you

Whether it’s a deposit on a house, your children’s education, being comfortable in retirement or a dream holiday, it is much easier to save if the savings goal is real and important to you, rather than just a vague “everyone needs to save”.

Pay yourself first, you deserve it

Put money away for saving as soon as you receive your salary. It is best if this happens automatically. If you are first going to repay debt, increase the payment amount. If you are ready to start saving, put a debit order in place for this amount. Then also don’t forget… increase your savings when you get a salary increase.

By Danelle van Heerde