Many people don’t save because they don’t see where they can free up cash in their constrained budgets. And those who have some contractual savings in place rarely increase their contributions beyond the annual increases mandated by their product providers.
Contributing just 5% more to your savings vehicle can help you reach your goal faster. Similarly, paying 5% more than your minimum monthly instalment can substantially reduce your debt repayment period.
Sanlam’s calculations show that if a person earning R25 000 per month contributes 15% a month towards their employer-sponsored retirement fund, their monthly savings would be R3 750. If they saved this amount for 40 years, increasing with inflation, they could get 66% of their pre-retirement income when they retire. If they saved just 5%, or R188, extra per month, they could get 69% of their pre-retirement income. But if they also increased their contribution annually by 1% more than inflation, their retirement income could increase to 80%, assuming an inflation rate of 6% and an investment return of 9% per annum after fees.
Note that the illustrative values provided above are not guaranteed and should not be seen as an accurate forecast in any sense.
Saving or putting more money towards monthly debt repayment is quite possible, even if you live pay cheque to pay cheque. The trick is to break the hand-to-mouth pattern. A strategy of saving whatever is left after spending is unlikely to succeed or get you out of the pay cheque to pay cheque scenario.