Can you save more?

by Lettie Mzwinila - Allan Gray Strategic markets specialist
Can you save more?

Whether you are just doing a regular check up on your long-term investments or evaluating your monthly savings plan, it is a good idea to review your financial decisions at least once a year. July is savings month and the perfect time to take stock, writes Lettie Mzwinila.

Am I paying myself enough? This is a question many investors fail to ask themselves. By saving, you are effectively paying yourself: You are setting money aside to help realise your goals and building a financial buffer to ease the bumpy periods when life happens. Finding the space in your budget to save, after taking your monthly expenses into account, can feel like a daunting task, but once you get started, you’ll realise that all it requires is some planning and discipline.

Setting your savings targets

While there is no magic number that works for everyone, you may want to start saving some money to build a fund that can cover unexpected financial emergencies. As a general rule of thumb, you should aim to save enough to cover your living expenses for at least three months. It takes most people quite some time to accumulate this amount, but by contributing regularly it can be achieved. Your savings targets should be determined by what you are saving for, how much you need to save and how much time you have to save for it. Once you have worked this out, you will need to commit. Thinking of your savings and investments as essential fixed expenses that need to be paid each month can help you create the discipline you require for successful saving and long-term investing.

Am I paying myself enough?

To help you answer this question, you should evaluate these different areas in your financial life:

  • Your current financial situation: You wouldn't get into a car in the middle of nowhere and drive aimlessly without knowing the route to your desired destination. The same thinking should apply to your finances. You need to know where you currently stand in order to get to where you want to go. This is an important part of creating an effective financial plan, because it allows you to identify your financial needs and direct more money towards your savings and investments.
  • Your short-, medium- and long-term goals: What do you aim to achieve financially? Spend some time thinking about the things you really want and identify how much money you can save towards each of your goals. You may need to prioritise these goals if you can’t afford to put away as much as you would like to.
  • Your cash flow: If you are lucky enough to have a regular income, money constantly flows in and out of your bank account. But do you measure it? This is where budgeting comes in. By monitoring and tracking your spending you can identify and curb bad spending habits, allowing you to create more room to save.
  • Your dead leaves: While you may have your cash flow and budget set up, sometimes we have bad spending patterns that prohibit us from saving. It is important to evaluate your spending patterns regularly to help prune unnecessary expenses. Take the time out to consider what is important to you and eliminate the things you can do without.

Having a real overview of these four areas can help you get started, ensuring that you are paying yourself enough and securing your financial future, one month at a time. As with any goal, being realistic about your needs, and not being too hard on yourself, can go a long way in helping you achieve success. Your future lifestyle depends on the choices you make today, so plan for the healthy financial future you want by paying yourself first.

This article was published on the Allan Gray Website on 26 July 2019.

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