Living paycheck to paycheck is a harsh reality that many South Africans are facing due to the financial pressures that they are under.
It’s no surprise that factors such as rising food prices as well as increases in inflation and high interest rates have forced consumers to start thinking seriously about how they manage their money.
Here is some expert advice to help you stretch your finances:
1. Create a budget
Budgeting is the foundation of financial success. You can start your budget by tracking your income and expenses to get a clear picture of your financial situation. Then you can allocate your money wisely, making sure that you sort out your necessities and savings with room for your discretionary spending.
Budgeting is a great way to take control of your finances because you will always know where your money is going.
2. Tackle your debts
Having debts to pay can drain your ability to save for anything, including your retirement.
This makes it essential that you tackle your debts head-on. You can pay off your debts by adopting one of these approaches:
- Snowball method: paying off the smallest debt first
- Avalanche method: paying off the debt with the highest interest rate first
3. Build an emergency fund
Life can be unpredictable, so having an emergency fund is crucial to taking care of any unexpected expenses.
Bertie Nel, head of financial planning and advice at Momentum, says you should aim to have three to six months’ worth of expenses saved in your emergency fund.
You can start your emergency fund by setting aside a small portion of your income each month.
4. Start investing early
Even if you can only save a small amount, Karmen McDonald from Sanlam Indie says you should start investing as early as possible and then let the power of compound interest take over. This will allow your money to grow over time.
“Do some research, explore different investment options, and consider seeking advice from a financial advisor to make informed investment decisions,” McDonald said.
5. Prioritise
Your money is already tight because you are living paycheck to paycheck, so you need to prioritise where you are spending your money.
You can do this by knowing how to differentiate between expenses that are needs and wants.
A ‘need’ refers to something vital, such as your home and food for you and your family, while a ‘want’ is a nice-to-have, like a takeaway lunch.
You can scan your bank statement and divide all your expenses into what you spent on a need and what you paid for a want.
Having your financial priorities in order will also prevent you from making a mistake that many people make: buying things that you don’t have the money for.
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