How to get into the habit of saving
08 December 2016
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On mobile, on digital, on demand, this is Old Mutual Live, the Money Coach edition. Hello and welcome, my name is Chris Gibbons. With me in the Old Mutual Live studio is John Manyike, Head of Financial Education at Old Mutual. John welcome, good to have you with us.
John Manyike Thanks Chris, I’m glad to be here.
CG: John, my grandmother, my Goggo was a very good saver, she’d take a little bit each month, put it away, she called it her ‘nest egg’. In that way she always seemed to have something to spare when there was a problem. I do have a savings account, I do put money into it, when I can. But that doesn’t seem to be very often and the result is, whenever there’s a problem in my house, I always find myself a little bit short, does that sound familiar?
JM: Yes it does. Saving is one of those things that you just need to have a habit of. From your example it’s quite clear that your grandmother made it a habit.
CG: Habit’s the key word.
Have that financial goal
CG: How do you get into that habit?
JM: Like they say, old habits die hard, so there are a couple of things I think people need to do. Firstly, it’s the mind-set. I advise people against saving without a purpose. If you save without a goal or without a purpose, you become very vulnerable to being tempted to spend the money.
Disciplined saving is very difficult when you’re not actually saving with a goal in mind. At least when you have a goal in mind, it motivates you. You know what you’re aiming for, you know what you’re working towards, you can always track how far you are from that goal. Let that goal be an inspiring one.
Whether you’re saving for a house or maybe alterations in your house. Whether you’re saving for Lobola or whatever it is that you’re saving for. It must be something that inspires you. You need to have a goal to save.
CG: There are some things that I just have to save for, kids’ education.
CG: I’m not saying that shouldn’t be inspirational, but you’ve just got to do it.
JM: I can see how that can be an inspiration for any parent, we want our children to be successful. We want them to be responsible citizens in the community and have a successful career. The best way to encourage that is to actually save for your children’s education, that for me is a no-brainer for any parent. You are saving for a goal if you’re doing that.
How to get into the habit of saving
CG: How do I get into this habit? I’ve got the inspiration, yes, there’s my kids inspiration, there’s my new car or whatever it might be. Whatever really turns me on, how do I get into this habit?
JM: It’s about starting to do things differently. For example, earlier I spoke about a mind-set change. So the first one we spoke about, having to set a goal, it’s a mind-set thing. Second thing is, treat savings as an expense. If you want to help yourself in getting into a habit of saving, you need to change your mind-set.
So the second way of looking at saving is treating savings as an expense and actually it’s one way of paying yourself first. It’s your hard earned money, so treat savings as an expense. In the same manner that you have to pay a whole lot of people that you owe. But treat savings as an expense as way.
The other thing is to make savings fun. You might want to have a competition with your family or friends to see who can keep their savings the longest. It’s another way to make it fun. As you do that, then it becomes a habit. Another simple thing that you can also change is, instead of buying lunch at work, you might want to take a lunch box to work.
From your leftovers, you had dinner, you probably have some food that you put into containers in the fridge. Sometimes you don’t even use that and end up disposing of it. You might as well convert that into a lunch and calculate how much you are saving every day by taking a lunch box to work. That will motivate you over time.
CG: And you can put that difference into the savings.
JM: Absolutely, you can put that difference into the savings.
CG: There’s also something that needs to be remembered here and that is the power of compound interest. When you save and you save for a long period of time, you don’t touch it, the compound interest can turn it into a very significant sum of money. That’s especially true for younger people.
JM: Albert Einstein said that there are two kinds of people, those who understand compound interest, they earn it, those who don’t understand it, they pay it. It’s very important to make sure that compound interest works for you and not against you.
Can you turn to your bank?
CG: Can I ask my bank or can I ask a company like Old Mutual to help me save?
JM: Yes, you can. If you speak to a financial institution, speak to your financial advisor, I think that’s the best way to start. Speak to your financial advisor, let them do a need and affordability analysis, look at your appetite to risk. What sort of savings vehicle is most suitable for you and then recommend the right solution for you. It’s very important for people to do that.
CG: All right, you’re listening to Old Mutual Live, the Money Coach edition, on demand, visit dogreatthings.co.za. John, let’s just go right back to the beginning on this one. Why do I need to save in the first place?
JM: Okay, you need to save in the first place because one; there will come a time in your life when your body will not be able to function the way it is functioning now. Look at your body as a money making machine. At some point this money making machine is going to have to retire.
At the moment you’re working for your money, but you need to get to a point where your money starts working for you. When you are not able to make it. It’s very important, you save for retirement. You know that money will work for you. When you retire you can no longer make money.
You save for your children’s education, you know that you’re supporting your children. Helping them so that they don’t have to be dependent on you once they’re matured and they’re at the age where they can work and so on.
Also it means saving for different things. You want to create wealth. If you want to create wealth, the best way to start is to save because then that opens doors to investing in other things. But you need to start somewhere.
CG: You’re listening to Old Mutual Live, the Money Coach edition on demand, visit dogreatthings.co.za. John, let’s just end off by recapping, what are the things I need to do to get into the habit of saving?
Summated tips for learning to save
JM: We spoke about setting a goal, make sure you save for a purpose or a goal. Because if you don’t have a goal and you’re just saving, you become easily tempted to spend the money. Treat savings as an expense is another way.
Take a lunch box to work, another one which we didn’t make earlier is that make savings automatic. So you don’t have to manually or physically have to put in money, like you’re going to pay some account somewhere, but make savings automatic. Speak to your financial advisor, so that they can advise you on the best product for you.
CG: This has been another edition of Old Mutual Live, the Money Coach edition, my name is Chris Gibbons. With me in the Money Coach studio has been John Manyike, Head of Financial Education at Old Mutual. John, if the listeners want more information about this, where would they go?
JM: Okay, like our page on Facebook, which is On the Money Financial Education Programme or follow us on Twitter @OM_OnThe Money.
CG: Get in touch any time, if you have any questions for either John or me, topics you’d like us to cover on Old Mutual Live Money Coach. Please feel free to send them direct to me at email@example.com. We’d be delighted to hear from you. Until the next time, thank you for listening. Old Mutual Live, on mobile, on digital, on demand.