Monday, July 12, 2010

So where do you start saving?

The golden rule of saving is to "start with a plan".
To draw up a plan, you need to know what your end goal is and what you need in money terms to get you there. The following steps can help you to draw up your plan and stick to it!
  1. What are your savings goal? Everyone needs a reason/s to save, e.g. to achieve retirement savings of R1 million, to be debt- free (no home or car loans) by age 40, etc.
  2. How much money do you need to reach a goal?This will help you determine what you shoul be saving or investing every month.
  3. Draw up a realistic monthly budget. This is one of the most effective tools to see where your money is going and what disposable income is available at the end of the month. A budget is simply adding up all your monthly expenses (rent, bond, and car repayments, insurnace, retirement fund contributions- including AVC's- electricity, etc) and subtracting it from your nett monthly income. Any money that is left over is called disposable income.
  4. What can I do with my spare cash? Your disposable income should not be used to generate more expenses, but to pay off any debts or, if you are debt- free, to invest towards meeting your goals. To be financially stable, you need to prioritise your needs and wants at each stage of your life. Pay off accounts or credit cards with the highest interest rate first. Returns on your investments are unlikely to be higher than the interest rates on these cards. Then pay off your debts, e.g. home loan, car etc. as quickly as possible. A debt management plan can help you to get rid of your debt.
  5. When do I start investing? The golden rule of investing is not to invest if you have debt. With some emergency cash stashed away, a debt- reduction plan in place and a secure insurance safety- net, you are ready to consider investing.
  6. Getting help. Please speak to a financial advisor.
  7. Monitor your bidget, needs and savings to ensure that you are on track with your financial plan, that your needs have not changed and to see how your savings are growing.
Source: Retire Right- November 2002

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