Are you a saver or a spender? We look at the difference between the two money personalities.

People with a spender’s mindset always postpone savings plans and prioritise spending, even if it means using credit and racking up debt.

However, it is vitally important to have a savings safety net, especially during these tough economic times. It can be hard to get started but this July – the South African Savings Institute’s savings month – is a great time to take the first steps.

Savings make your money work for you. Have you noticed that most of the money you work so hard to earn has usually vanished by mid-month? However, when you have savings in the right places, your money can actually start working for you, thanks to compound interest.

Compound interest
Compound interest is when you earn interest not only on the amount you put away each month, but also on all interest earned in the past. This means that it has the power to turn a small amount of money into a whole lot more, over time. It’s almost like a rolling snowball (your savings) that picks up more snow (interest), which makes the snowball larger, which means it picks up even more snow each time it rolls over.

Where to start?
The idea of saving money might seem crazy when you usually only have about R10 left at the end of the month. Many South Africans prefer to turn to debt when they need money and don’t have any savings available. This quickly leads to a vicious cycle in which debt and high interest rates suck up all the available income and there is nothing left for saving.

If you are in this cycle, it’s time to break it. Here’s how:

Reduce debt
Otherwise debt repayments will simply absorb any possible money for savings. If you have many different credit cards and loans, speak to a debt counsellor for help with debt consolidation. This will help you to get on top of what you owe, reduce the overall interest rate and simplify the repayment process.

Never spend more than what you have
Follow the golden rule to never spend more than what you have. This is key in getting debt under control and avoiding another vicious cycle. A monthly budget makes us more aware of where we are spending and helps to identify where we can cut back. Some people even keep a spending diary to help them plug the money leaks.

Pay yourself first
Reducing debt repayment will free up money for saving. But it’s easy to fall into the trap of spending that money on non-essential things (wants) and leaving no money for savings. Pay yourself first, by allocating money to savings as soon as you’ve been paid. Remove any temptation to spend this money by making this payment automatic, through a debit order or payroll deduction.

Struggling to stay on the savings track?

Find a Savings Buddy. This could be your partner, colleague or friend. Meet regularly and help each other to stay on track.

Article by Momentum.

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