and yes, I mainly mean those monthly money ones. You see, after some thought on the matter and deciding I could be doing better with my hard earned monies, I spent the last few weeks yielding a red pen over my bank statements (metaphorically) like a machete hacking at those expenses wherever possible. Of course, part of the goal is to _not_ diminish my lifestyle in any way. End result? Conscious reductions alone equal about R 2000 a month. Got my insurance down, cancelled the pool maintenance, changed my cell contract etc etc. Unplanned reductions add almost another R 1000 to that tally (who would’ve thought changing a shower head could potentially mean a R 200 p/m difference).
OK, great. That’s a whole lot more beer every month! Haha! Yes, true story…but no.
Seeing as I was living comfortably before all these savings, what would I be doing with them? As it happens, I want to use the savings each month to increase my savings each month 🙂 Yes! Pay of the credit cards and the overdraft. Close, but not quite.
I know the common suggestion is ‘pay of the highest interest rate debts first’. And I understand why, but I also think it’s wrong for 2 reasons. First of all, assuming you DO NOT EVER use the credit card your paying off again, the actual monthly VALUE of the interest you’re paying on an account could be much higher for a lower interest rate account. Take a look at the RAND VALUE of the interest you’re paying to decide which one to pay of first. 7% on a million is quite a lot higher then 20% on R 10 000.
The interest rate thing aside, the biggest problem I face with paying off credit cards etc is that I have little to no self control. If I pay extra money into my credit card, I will likely end up spending it before the month is up. So my new debt reduction system to go along with the 1) Highest interest rate and 2) Highest interest value systems is number 3) Paying off the least accessible debt first.
In other words, paying extra money into accounts where it is near impossible or very difficult to get my hands on it again. In my case, my car loan. No, it’s not the highest interest rate on my books and it’s also not the highest interest value either but it does happen to be one of my biggest monthly expenses so if I pay it off sooner it’s a bundle worth of monthly saving. And here’s the important bit, every rand I put into my car loan I cannot get back to spend. It’s gone, sayonara, poof. Yes, it’s doing what it’s supposed to be doing and saving me in the long run and it has the added bonus of I can’t ‘reverse’ it like I can with those evil pieces of plastic.
That being said, I have a plan for those evil pieces of plastic as well when the time comes around. And I’m sure I mentioned it in a blog post somewhere many moons ago?
What are your plans and thoughts around savings?
PS: Don’t tell me to have a budget. My mother is a financial genius who taught me to budget. I have a budget. That budget is the reason people don’t phone me about missing payments. That budget makes me look like a responsible adult. Problem is not about having a budget…it’s about sticking to it. Have I mentioned my self control issues?