How to create an effective savings plan in 3 mins

As the age-old African proverb goes "For tomorrow belongs to the people who prepare for it today" the journey to a comfortable financial status begins with a few minutes of admin. You can't start saving unless you have the right accounts. And just some helpful advice, you are going to need more than just the right accounts to reach that comfortable status.

First thing's first

Do you have an emergency fund yet? I am sure you have heard of many stories of terrible things happen to very nice people and with load shedding around for the foreseeable future you might have to make major repairs to your appliances, so you should have at the ready an emergency fund that will cover at the very least three months of your (and your family’s) expenses. This — along with reducing any large credit card bills — must be initiated promptly, to prevent having to rely on high-interest credit in the event of an emergency e.g using your credit card to pay for repairs on your fridge.

One piece of advice: make this nest egg a savings account, money market account, or savings investment account, that’s separate from your current account since it’s tempting to transfer savings into a current account to cover bills.

Savings plan formula

Those looking to create an overall masterplan for their finances would do well to consider the 50:30:20 rule, which provides a roadmap to create comfort — even wealth — for your future self. The first step is to figure out what your take-home, or net pay, allocate it this way

  • 50% goes to needs. This is the non-negotiable stuff, including rent or home loan payments, groceries, and monthly medical aid premiums. This one tends to be the toughest one for younger people; recent studies have shown that millennials devoted a full 45% of their income to rent before turning 30. So understand that these are just guidelines meant to help you, not make you feel like a failure. Just do your best, that is good enough for us.

  • 30% goes to wants. This here is the fun percentage, the one you use to shops for clothes, vacations by the beach, dinner dates or for those bottles you like to pop. All non-necessary expenditures fall under this umbrella.

  • 20% goes to savings. Though this percentage may be listed last, don’t forget to: “Always Pay yourself first.” So even before paying rent, you should first concentrate on using this 20% to eliminate your credit card debt and building an emergency fund.

How much should you save a month?

In a perfect world, you should be saving 20% of your net pay (what you get in your bank account) every month. If don't have credit card debt and have 3 months of emergency expenses saved, this 20% should either go towards your investments.

Weekly savings plan

Let's look at a practical example that will give an idea of what you should strive for. If your salary is R 300,000 per annum, you’re making about R 25,000 a month. Twenty percent of that is R 5,000 a month. Manageable, right? Scheduled payments or a debit order is a great option to help you make sure your 20% goes towards your future. You can easily link your current account to a savings account that can serve as your emergency fund.

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