
It takes a no-brainer to realize that South African citizens have a poor savings culture. A large portion of their disposable income is consumed in debt repayments. This is also evidenced by the relatively high ratio of household debt to income, currently sitting at 65% in South Africa, compared to 19.5% in Botswana and 21% in Russia. This implies that nearly 65% of household income is used to pay off debt. Although borrowing money isn’t always a bad thing, it becomes a problem when citizens borrow money to meet basic needs and finance existing loans, a trend that is prevalent among South African citizens.
The Urgency of Saving:
The pernicious effects of the COVID-19 pandemic, complemented by geopolitical tensions such as the Russia-Ukraine war, have left the South African economy in a critical state. Disruptions in global supply chains have likewise raised commodity prices, including food and energy prices. This has induced the South African Reserve Bank to embark on a monetary policy tightening cycle by raising interest rates, which have in turn, increased the debt servicing costs of many South Africans and left some in a debt spiral. That is, a situation wherein people borrow money to meet existing financial commitments. Meanwhile, the South African economy is anticipated to grow at a mere rate of 1% in 2024. As such, there is a strong need for South African citizens to save money.
Practical Savings Strategies:
Is saving money as easy as it sounds? Theoretically speaking, yes, but in reality, no. Traditional money-saving methods such as stokvels are found to be more relatable and beneficial in South Africa. Local citizens often set money aside in groups during the year and distribute it during the festive season either in the form of cash or groceries. This process has led most people to spend less money during the festive season (consumption smoothing), thereby saving some for the upcoming year. Other citizens have established automated emergency funds wherein a specific sum of money is debited from their transactional account every month. Reviewing current expenses may also be helpful, such as medical aid options, data bundle plans, insurance policies and cancelling unnecessary subscriptions. Although the process can be too administrative, it can result in long-term financial gain.
Avoiding takeaways doesn’t only provide financial relief but offers numerous health benefits. Consider a young professional who lives on takeaways. If you order takeout at least twice a day and 4 times a week, on average, for R65 a meal, that works out to R520 a week, R2080 a month and R24 960 a year. If we add your daily need for coffee or weekly spending on alcohol, the situation becomes worse. Others engage in second-hand shopping. Most retailers have second-hand products that are of good quality or “used like new”. As such, buying second-hand items such as clothes, furniture, electronics and even vehicles, might also be cost-saving, especially for a young professional who hasn’t figured things out. Of course, every option has its downsides. Negotiating with the bank for lower monthly repayments on a mortgage or vehicle loan might also be an option. Although this might stretch one’s repayment term, it is often considered a better option than having to surrender assets which can negatively affect one’s credit record or even result in a settlement shortfall.
13th cheques are also common among the working class. This entails making arrangements with an employer/HR manager to deduct a fixed amount of money from your salary throughout the year which can be converted into a 13th cheque in December to smooth out spending. The last resort is to downgrade one’s standard of living, either by cutting down on entertainment, moving into a smaller apartment/house or switching to a less expensive, fuel-efficient car. It is sufficient to note that downgrading assets often results in negative equity/settlement shortfalls, as such, one should seek financial advice first and weigh their options. Of course, there is no gain without pain. Overall, when making long-term financial decisions such as buying a car or house, it is always advisable for one to seek proper financial advice from an expert.
Conclusion
The hardest thing about saving money is getting started and knowing the right places to cut. Of course, the process of saving money often results in a reduced quality of life, but the long-term consequences of spending beyond your financial means are even more dire. If there’s anything that you are spending on which you believe you are not deriving much economic value from, cut it off and never look back. Perhaps all that you need is a roof over your head, some basic foodstuff and the ability to commute to work most cost-effectively.
*Disclaimer: Please note that this article is not intended nor does it constitute financial, tax, legal, investment, or other advice.