How to reach your saving goals, even when life happens
When money’s tight and you are just making it from payday to payday, it may only take one unexpected expense like a car repair or a tax demand to completely derail your finances – or any plans you have to buy a home this year.
“Today the lending environment is much stricter than it was 10 years ago,” says Gerhard Kotzé, MD of the RealNet estate agency group, “Most banks use set formulas to evaluate home loan applications and measure your ability to pay the monthly instalment. You generally need to show that you also have enough discretionary income to cover property taxes, insurance and maintenance, with some over as a buffer against possible interest rate increases.”
What’s more, it is difficult to be approved for a home loan unless you have enough savings to cover a deposit of at least 10% of the purchase price. So the bar is high, and an unplanned expense that eats into your savings, or absorbs a chunk of your discretionary income until you have paid it off, can easily put you out of the running.
And the only answer to that, he says, is to start expecting the unexpected and planning for the unplanned – by doing whatever it takes to get rid of debt and increase your savings, so that a “rainy day” does not become a major financial disaster for you, and force you to give up on your home-buying plans for another year.
Work towards a goal
Kotzé suggests reverse engineering the savings process. We all know how good it sounds at the beginning of a year when we resolve to spend less than we make, cut out or put off unnecessary expenses and bank what we save. But we also know that these plans often last about as long as the average new-year diet or gym plan.”
Instead it is likely to be more successful to start with a specific goal and then follow a step-by-step plan to achieving this savings goal. For example, start with a specific amount that you are determined to save this year, say R10,000, and then work backwards to see how you can get to that goal.
To achieve R10,000, you will need to save R834 a month, or R27.40 a day if you prefer to break it down even further. This is a much more manageable number and you may immediately be able to see where you could save that amount – take your own lunch to work, use public transport instead of driving everywhere.
The second part of this process, Kotzé, says, is to genuinely make saving your priority. “In other words, it really must come first in your life before the takeaways for dinner, before the cake and cappuccino, before the new suit, new shoes or any of a thousand other things that may seem like insignificant purchases but can quickly add up and keep you from reaching your savings goal for the week or month.”
Of course this is not always easy, and it may mean that you have to keep on making tough choices, like not buying any new technology or clothes this year, or not going away on holiday until you reach your savings goal for a home purchase. But as those who daily choose to go to gym instead of giving in to the impulse to stay on the couch will tell you, it gets easier and easier as you start to see the results.