Saving is one of the key pillars of financial literacy, but unfortunately many consumers in the developing world lack not only the means to save, but also the knowledge to understand how to save in the right way.
Basic knowledge of earning, spending, saving and borrowing is essential to empower those in the developing world to make financial decisions that can improve their lives, but many simply do not know where to start. This is not helped by the fact that 53 percent of people in developing countries do not have a bank account at a financial institution.
So, to help you take those all-important first steps, here are our top tips to help you save…
- Choose your priorities
The first lesson is that saving money requires you to make a choice. You must decide what it is you are saving for. It might be that you need money to buy a car, improve your home or pay for a one-off expense. To do this you need to set a goal. You must determine how much you’ll need to save to achieve your goal, and how much you will put away each month. Part of this process is deciding how long you can wait to save for a particular goal. For example, if it’s going to take three years to save for a car, perhaps there are other more achievable goals you should save for first?
- Calculate your expenses
The next step is to calculate how much money you spend. To do this accurately, you should keep a record of everything you spend for a month. That means lunch, transportation, bills and so on. You should also factor in the cost of one-off expenses you will have to pay in the near future. That includes new clothes, car repair bills and other types of expenditure. Once you know how much you spend every month, you can then calculate a figure you will realistically be able to save.
- Create a budget
Once you have a clear idea of the amount you save every month, you can build a budget by identifying areas where you might be able to cut back. For example, could you reduce your transportation costs, entertainment or spend less on eating out? You should also limit over spending, so if there are any nonessential payments you make every month, could you reduce these without impacting on your quality of life?
- Set saving goals
Once you know how much you can save each month, you can then set some realistic goals. The first goal should be to save enough money to cover six months of living expenses. If you were to lose your job, this financial buffer will give you time to find a new position and still be able to pay the bills and remain in your home in the meantime. This is essential. You can then think about your short-term goals, such as saving for a holiday or a car, and your long-term goals, which could be putting some money aside every month for your retirement or your children’s education.
- Watch your savings grow
You should keep a careful eye on your savings as they grow from month to month. This will provide the motivation to stick to your budget and keep to your plan. You should also look at other resources, such as the series of online Money Academy tutorials produced by the lender Wonga for more tips about how to save.
Do you have any saving tips of your own to share with our readers? Please leave your tried and tested saving strategies in the comments section below.