16 Oct The Importance Of Developing A Savings Habit
If you get into the habit of putting aside some money each month, it can greatly reduce the chances of debt problems further down the line.
Building an emergency fund
Many people see short-term lending as a way of dealing with financial emergencies. However, it is undoubtedly better if you can deal with financial emergencies by dipping into your savings. Financial advisers generally recommend that you try to build up an ‘emergency fund’ of three months’ essential expenditure.
Unpredictable life events
Life is unpredictable, and while we might try to stay in control, we never completely know what’s around the corner. As John Lennon once famously said, “Life is what happens to you while you are busy making other plans.”
You might lose your job, become ill, or have an accident. You may need to pay for emergency repairs at home when the boiler, washing machine etc. breaks.
If you already have an emergency fund in place, then you can use these funds to address at least part of your financial emergency. This then reduces, or eliminates altogether, the need to borrow money to meet the costs of the unexpected event.
Two-thirds of people feel unable to save
A survey of 18,000 customers of Wonga SA indicated that almost one third save on a monthly basis, but this, of course, means that two-thirds of customers do not put money aside regularly.
If you are already experiencing debt problems, then it may be too late to develop the savings habit, as any spare money you have might have to be used to reduce your debt. Ian Wason, CEO of debt management company DebtBusters, commented:
“Half of all credit-active consumers are burdened with debt and have little or no room in their budget for savings. And those who are unable to generate savings do not have funds to fall back on for emergency expenses.”
Check your credit report
The survey also showed that 77% of customers do not look at the interest rates and fees when applying for a loan.
Furthermore, less than half (43%) knew what a credit report was, and only one third (33%) were aware they could request a free credit report.
The importance of checking the accuracy of your own credit file was highlighted by Wonga SA CEO Brett van Aswegen, who said:
“In an effort to better manage their finances, consumers should always look at their credit report to see what steps can be taken to improve their credit score and rectify any inaccurate information on the report.”
Commenting on the survey findings in general, Mr van Aswegen said:
“It is imperative that consumers are educated about the various issues related to credit and to get financially fit to avoid getting into debt. Savings help prepare for unforeseen emergencies, but too many consumers don’t have the additional financial means or the discipline to save.”
Before you get into any serious debt trouble, you are advised to complete a budget planner and work out how much you might be able to save each month. There are a number of budget planning tools available on the internet.