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Saving is important. It can help us to become financially secure and provide a safety net in case of emergencies or unforeseen circumstances. With the rising cost of living and a high unemployment rate, it can seem easier to borrow than save.
"All of us need a savings account for access to contingency funds for unforeseen dilemmas," says independent debt counsellor Renée Marais.
"These contingency funds are an additional savings account that you have control over."
Tips for beginners
Some examples of savings accounts that credit providers offer include:
* dedicated savings account;
* a 30-day savings account;
* a 60-day savings account or
* savings for education.
These savings accounts can be used to cover added costs that are outside of your monthly budget, such as payments to cover your medical aid shortfall, your yearly vehicle registration, maintenance on your vehicle or to save for a holiday.
Marais advises that these savings should be made with discipline every month and should be at least 10% of your gross salary/ income per month.
Savings vs. debt
Whereas saving is a choice, debt repayment is a contractual obligation between you and your credit providers.
"If you enter into a contract with any credit provider, they are acting in good faith in advancing you money, and you have an obligation to repay it," says Marais.
The National Credit Act, established in 2007, also advocates that you need to pay your living expenses, and that what is left over should be utilised for debt repayment.
So, how much debt is too much? While there is no definite measure, there are ways to determine if you've taken on more than you can handle.
Fin24 previously reported that the most important way to determine whether you have too much debt is by calculating your debt-to-income ratio.
But how does one balance saving while paying off debt?
Marais offers some tips to help take control of your finances:
* Have a budget and stick to it;
* Have a savings plan for short term needs;
* Have long term savings – insurance, assurance, policies, annuities, pension plan etc. to be facilitated with a registered Financial Services Agent;
* Do not skip debt payments, as the penalty for that is additional interest and possible legal action;
* Seek help before you are in default.
When to seek help:
* If you are borrowing money from friends to make ends meet;
* If you buy food, transport or housing on credit;
* If you start skipping payments to some of your credit providers in order to pay others; typically, not paying your personal loan to pay your credit card, in order to utilise that for buying food.
- Renee Marais NCRDC1780 is an Independent Debt Counsellor.
* It's National Savings Month. Do you have a successful savings plan or story to tell? Share it with us now and help others to also become Savings Heroes. For more on savings visit our special Savings Issue.
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