Pay Yourself First!
“Spend what is left after saving”, not “save what is left after spending”
The best way to think about saving is “paying yourself first”. You get to spend that money in the future (but not now). If you do the wise thing and use financial instruments, you’ll find that when you do get to spend it, that money is worth more.
Paying yourself first can include putting money into your money market fund, an investment account, your retirement account or even paying your life-insurance premium.
1. First things first (you may dread doing it but it is absolutely necessary) work out a budget. Don’t just think about it, take a pen and paper and write it down or type it out on your phone. You need to face those numbers and get comfortable with dealing with them every month.
Once you know how much you earn (income) and where your money is going (expenses) you can determine how much you can save. A good rule of thumb is that you must have saved up your annual salary by the age of 30 - and then increase your savings by your annual salary every five years.
If you feel a little overwhelmed, I’d say a good place to start is by saving 10-20% of your income. Start where you can, every little helps!
2. Decide on a fixed amount to save each month. There may be months where your surplus is P1,000 and times when it is P2,000. Set a figure you are certain you can afford every month; make that the automatic deduction and any extra can be transferred as top-ups. The automated transfer means your savings are always taken care of at the start of the month and you get into the habit of saving.
Remember to adjust the fixed amount if your pay increases. Earn more, save more.
3. Next, consider where you are putting your money, particularly taking interest rates into account. There is no point putting your savings in a current account as they don’t offer any interest.
Money Market funds are good as they offer better interest rates, currently averaging 5% in Pula terms.
When you have saved P4,000 for example, you’d be getting P200 interest annually from a money market fund.
Unit trust funds can start with deposits as low as P200 per month so do not be discouraged to start small. A little truly goes a long way.
Saving might not be easy at first but remember, you’ll get to spend that money in the future. It will come in handy when you need it the most - so it’s best to prepare now for those financial inevitabilities.
Written by: Lorato Masedi
SCI Wealth are Botswana Licensed Investment Advisers and Certified Financial Planners. We help people in Botswana do sensible things with their money - save and invest for the future - and become financially more successful.
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