Categories: COVID-19 Money Advice News

5 things you should and shouldn’t do when saving money during the COVID 19 crisis

Saving money gives us greater security in life, it gives us a contingency strategy for the rainy days.

The only problem it’s not a rainy day, it’s a downpour. Coronavirus has pushed us into a situation which makes it impossible to think long term.

 If they were ever a time when it was justified to dip into your savings is now but financial wisdom is knowing all this and still saving up your money.

We are in this for the long haul,  experts call this phase a global dislocation of funds and no one really knows how long we will be in this for.

Saving up your money is your safest bet. Here are a few tips on what you should and shouldn’t do when saving your money during a crisis.

You Should:

1.Reduce costs

This is probably the best time to redefine your necessities and cancel out everything that doesn’t fall under the category from your budget.

Keep your spending habits to a limit. Trust me when I say your money looks better on your bank account than in your fridge or wardrobe.

Stick to absolute expenses like rent, health insurance, utilities and cut out on bills like your gym subscription and just about anything else you can’t afford to waste money on right now.

This is actually a great time to borrow from the minimalist approach to personal finance (i.e. if you don’t subscribe to it already).

Leading a minimalist lifestyle is all about keeping things simple and reducing unnecessary spending.

Budgeting does wonders in helping you reduce spending so create a budget and stick to it.

As one Swedish  Proverb says, “He who buys what he does not need, steals from himself “.

Question all your purchases and the level of importance of whatever you are spending money on.

Remember how much time it took you to raise that money and the freedom you had to give up to earn it, now consider if that purchase is really worth it.

If you are due on credit payments, loan payments, mortgages and other such things then consider asking for a payment holiday from your creditors.

It won’t last forever but it will give you a chance to breathe and get your finances in order.

2.Adjust your savings goals

If you are already into saving, I’ll assume that you already have your own savings goals.

But for the benefit of those who don’t have an idea, I’ll go back to the basics and explain what savings goals are. 

It’s generally known that people who set goals save faster than those who don’t.

It’s very important to be specific about exactly why you are saving up, as goals are an invaluable tool to help you in saving up for something over time.

Your goals can be long term, mid-term or even short term. Retirement funds, purchasing a car or house, an emergency fund, a holiday can all be classified as savings goals.

Adjusting your saving goals may mean making a conscious decision to cut your leisure costs by 30% or double the amount you are saving.

It may also mean up adding a certain amount to a specific goal, e.g. an extra R1000 to your emergency fund or even trying to go a whole day without spending money.

Desperate times call for desperate measures therefore if the need arises, you can adjust your savings goals negatively.

Rather than increase the amount you add to your savings when you very well know you can’t afford to, consider reducing the amount to whatever your financial situation allows you.

The most important thing is sticking to the routine of saving because, in the end, the habit is more important than the amount.

3.Find a high savings rate

Find a bank that pays good interest on your savings. Compare interest rates between different banks and pick out the service provider that offers you the best value for your money.

Most South African banks now offer tax-free investing. With this option, you will not pay income tax, dividend tax, and capital gains tax on the allowed tax-free amount.

Be careful on the costs though because there is no use saving on costs just for the fees to gobble up on your returns.

You might also consider choosing a low-cost index tracker like Satrix ALSI Index Fund to keep a check on costs.

You Shouldn’t:

4.Dip into savings without a plan

The current situation is a crisis like no other we have known before. While taking money from savings is certainly justifiable, it’s something that you shouldn’t do without a plan.

While you should steer clear of your long term savings, your midterm and short term savings should also not be tampered within the absence of a solid back up plan. 

Rather than plunging into your savings, use money in your emergency account as it’s designed for times like these.

You should, however, use it cautiously because whilst your current condition may seem like an emergency, an even greater emergency like retrenchment or worse may be lurking. No one knows what lies ahead.

Retrenchment may be lurking in the background. The future is full of uncertainty.

Keep tabs on how you use your money and if possible stick to using cash. The trips to the bank and ATM to withdraw cash will limit your spending.

Splurging money is also not as easy when you are physically handing over money,  it makes you stop and think about what you are spending hence reducing chances for impulsive buying.

5.Withdraw from savings too often

Savings accounts are easily accessible and may allow easy transfer of money from one account to the other.

This makes it very tempting to use the money. Why should you suffer when you have a stash that’s only a few clicks away right?

Needless to say, this would be a very unwise act on your part. Of course, it’s very hard to think long term under these circumstances but financial shrewdness is knowing not to fall back on your savings for every financial problem you encounter.

In the circumstances where you have no option but to withdraw from your savings(rare as those should be), settle on a minimum amount.

Make sure all your withdrawals are planned and set a minimum amount for every withdrawal.

Impromptu decisions on matters to do withdrawing funds from savings are often irrational and best avoided.

Penalty fees are high for premature withdrawal of funds from savings accounts so before going ahead and pulling out that money, think about the money you will lose in the process.

Moreover, continuously taking money from savings is inimical to your long term savings goals.

Conclusion

Financial intelligence is a lifestyle and nothing reflects it better than savings. Save up as much as you can and make the best decisions concerning your money.

There are a number of ways you can save your money. Adopt some now and save. Your future depends on it.

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