Saving money is now a standard practice many South Africans are using to try circumvent the rising cost of living as well as rising inflation and interest rates.
While saving is vital for you to be able to secure your financial freedom, how to start or how much money you need to contribute towards your savings can be confusing.
Sebastian Alexanderson, founder and debt counsellor at National Debt Advisors said that saving money is a very important part of any healthy personal finance management strategy.
Alexanderson breaks down three budget methods below to show you just how much you need to put towards your savings monthly:
70/20/10
With this budgeting method, you need to separate your salary into three groups where:
– 70% of your income goes to living expenses.
– 20% to debt payments.
– 10% to savings.
80/20
Another budgeting method is the 80/20 method, where you separate your salary into two separate groups. People need to separate:
– 80% of your income for needs, wants and debts
– 20% is strictly allocated for savings.
50/30/20
Like the 70/20/10 method, you need to divide your salary into three categories. With this method, you can put away
– 50% of your salary to needs like rent, groceries, and utilities.
– 30% to wants such as hobbies, holidays, and eating out.
– 20% to your savings.
Emergency fund
Over and above your savings, you need to have an emergency fund. The emergency fund will allow you to be prepared for unforeseen circumstances or unfortunate events. Rather than falling into debt when an unexpected situation happens, you can use your emergency fund to take care of things.
According to Katlego Gaborone, a financial planner at Momentum, people need to have at least three months’ salary saved up in an emergency fund.
Review your bank statements and track your expenses to see how you can cut down on your spending. Whatever money you save when you cut down on your spending can be put toward your emergency fund.
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