The money mindset

Here’s how you can get a handle on your finances

At Discovery Bank, our research shows that South Africans are, to a large extent, big borrowers and poor savers. It doesn’t bode well for our short- or long-term financial health, but there are ways to reduce indebtedness and create a savings culture.

Changing five controllable behaviours: spending less than you earn, saving regularly, insuring for emergencies, paying off property, and investing for the long term can materially improve your financial position, reduce the risk of not being able to meet your financial obligations, and grow your wealth.

If you’re starting out, you have to know the basics. Here are some money-management tips:

• Study your statements

Do you simply ignore your bank statements? It’s a good idea to spend some time analysing them to gain a thorough understanding of what you’re spending your money on. How much are you spending at the supermarket? Can you save money by buying in bulk? Are you spending too much at restaurants? Are you paying for services you don’t use? Look for red flags and find ways to minimise your spending.

• Understand your spending triggers

Looking at your bank statement, can you see when (and where) you’re spending the most and then identify any obvious spending triggers? Maybe you’re spending way too much on ‘after-work drinks’. Perhaps you overspend on gifts or can’t stop yourself from splurging online. Perhaps you value convenience over price – a real money sucker. Other spending triggers include wanting to maintain an image, having trouble saying no to invitations, shopping as a way to relieve stress or because you’re bored, and spending more easily with your credit card because you don’t want to deal with cash. Once you’re aware of your spending triggers, you can identify them as they happen and make different decisions.

• Define your financial goals

What do you want to save and, having looked at your statements, what can you afford to save? Why is saving important to you? What is the end goal? Are you saving for a deposit on a home or home renovations? Do you want to save capital to start a business? Or do you simply want to make your future as financially secure as possible? How will you feel if you achieve your financial goals? Answering these questions is the first step to defining your financial goals and then making them happen.

• Have a plan

You may have heard or read the quote by Benjamin Franklin: ‘Failing to plan is planning to fail’. It applies best to your finances. Not having a plan means there are no boundaries on how you spend, and you never know whether you’re achieving your goals. Planning your budgeting and saving takes time and deliberate effort; it doesn’t just happen. Work out where you’re going to cut your spending, and how you’re going to save enough to achieve the goals you’ve set for yourself. Perhaps you need to pay off a debt as quickly as possible, and then start putting the repayment amount into a long-term investment. Do you need to downscale your house or car, get rid of accounts or give yourself a strict socialising or clothing budget? What’s your plan?

• Save

The purpose of your plan will inevitably be to save as much as possible. Many financial experts advise that you save 15% of everything you earn. If you can save even more, do so, but always have an emergency fund that is separate from your long-term savings that you can draw from if you need money in a hurry. Another way to save easily is to make sure compound interest is working in your favour. This is when you earn interest on the interest you’re earning on your savings or investments – it can add up very quickly.

Managing your money well is a life-long skill, so the best you can do for yourself is to start now, understand your spending, develop good spending and saving habits and keep at it!

This article is not financial advice. Please consult with a financial adviser for financial advice.