“Don’t save what is left after spending; spend what is left after saving.” Warren Buffet
According to Investopedia.com (https://www.investopedia.com/terms/s/savings.asp), the definition of savings is “ what a person has left over after paying off all expenses or the amount you have after subtracting the cost of expenses from your disposable income.” If you were to continue with your search and Google the phrase “Savings in Lesotho”, the results mostly likely to come up are “ low savings, low income or people living below the $1 per day poverty line”. This is exactly the same results I expected when I did the same Google search and the results were concerning. The results portray Lesotho as a nation that spends a lot, rather than save enough money for any emergency that may arise and this is a big concern. Is this true?
For as long as I can remember, the importance of saving for a rainy day was reiterated at home over dinner, emphasized at school and if I was to stretch it farther, even at church. But how many of us are actually saving? And doing so consistently? Over the last few years, several financial experts have emphasized that people should pay themselves first before paying their month commitments. This means that when you receive your monthly salary of say M5, 000.00 for example, the first thing you ought to do is save 10% (equivalent of M500.00) for a rainy day or for any emergencies.
I do not know about you, but saving money is extremely difficult if we are to be honest. And with the increasing cost of fuel, electricity and food, it is harder to put away money for rainy days. Not only is it difficult to save, the challenge is also where to save?
I’ve often heard people say they cannot afford to save or that they simply have nothing left to save after paying the monthly expenses, which is a reality for many households. This reality also becomes very evident every “Jan-u-worry “ when the financial hangover hits many households after excessive spending in December. Yes, we all know about the euphoria that takes over our lives during the festive season where we fill our shopping baskets with clothes, expensive gadgets and alcohol to reward ourselves for all the hard work. The second aspect of the problem is when people who want to save are bombarded with a lot of information when doing research on where to save. Trying to navigate the financial jargon can be disheartening which leads to procrastination and ultimately zero savings. So what should one consider when trying to start?
Set a savings goal
“ A dream is a dream. A goal is a dream with a plan and deadline” Harvey McKay.
I am of the opinion that when you set a goal that is specific, measurable and time bound, you are most likely to achieve it, for example “ I want to save M15, 000.00 by March 2020 to pay for fees.” Writing down your goal and sharing it with an accountability partner gives you the motivation to work hard to achieve the goal. It is also very important that you set yourself a realistic goal and break it down it into monthly milestones i.e. saving M1, 250.00 per month to avoid losing hope, because committing to saving is not very easy. So make it easy for you.
Where to save?
How does one choose where to save when there are so many options available? Well, I believe that it starts with marrying your savings goal with where you save your money. A savings account should be easily accessible, have low costs and pay you some interest. This means that when you need the money, you should be able to access it immediately over the counter, within 24 hours or within a period of 12 months (depending on your savings goal). It is important to consider accessibility or as its commonly known as liquidity of the account when shopping around for the perfect account. The savings account should have low maintenance costs and should reward you with interest (although very low). Remember saving is hard, so you should get something for making the effort. If you would like to start saving, there are many different avenues available locally for example, using a savings account with your local bank, fixed deposit, Call accounts or notice account such as 32Days. Speak to your banker about suitable options. Another instrument one can consider when making a decision to save money is Treasury Bills available from Central Bank of Lesotho (CBL). Treasury bills are short-term instruments that have a face value of say M1, 000.00, but are sold at a discount e.g. M950.00 (you can buy it at M950.00) and receive M1, 000.00 when it matures. It is important to note that Treasury bills have maturity terms ranging from 91, 180, 272 and 365 days. Unit trusts are another avenue one can consider. A unit trust is a form of collective investment that pools money into a single fund for example Money Market fund available from asset management companies in country. Lastly, you can start an investment policy with your insurer (legally registered insurance companies with the CBL). Insurance companies such as Alliance Insurance for example, offer policies that can help you save money and create wealth; while helping you mitigate any unforeseen events. Again, speak to your insurance advisor about suitable options.
How to save?
The hardest part of saving is commitment and consistency. In my view, the easiest way to commit to saving money regularly is to have an automated plan to take away the burden. This means that you need to set up a monthly standing order/stop order from your transactional account to your savings account. You can do this by speaking to your banker to set up a transfer of M300.00 for example on the 25th day of the month (ideally the same day that you receive your salary) and transfer it to your savings account. A second alternative, depending on where you are saving money is to ask a third party e.g. asset management company or insurance company to set up a debit order from your account. This means that you authorise this company to take a set amount of money e.g. M500.00 and save it for you (make sure this company is legally registered with the Central Bank of Lesotho). The third option is to ask your Payroll Administrator (if you are employed) to deduct a specific amount of your salary and transfer it to your savings account and pay the difference into your transactional account. There are many avenues available that can help us develop a culture of saving; which is not only necessary but very important. I for one know the pain of not having money saved up for rainy days. Lets start today, start small and remain committed. Saving is very hard, but if done consistently- it gets easier and the rewards are incredible.