Making savings easy and simple through automation


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The challenge for most people is being able to save a portion of their income. While some have realised the need to start savings for retirement, investment purposes or for the rainy day, the process of realising this is still not clear to them. In our series on the Old Mutual Money Management advice this week, we present to you the key to savings automation.

Most people understand that they need to save, but just can’t do it month after month, without a break. To start a meaningful savings plan, we need to change our savings attitudes and habits. Savings must become a priority. Almost anyone who earns a regular salary is able to save something each month, even if it is only a small amount.

Our inability to save is usually because we lack discipline and are tempted by things we see in shops, on TV or magazines.

Advertising makes us think we need to spend. In reality, we probably don’t need expensive new shoes or a hi-fi and even if we did, cheaper ones are often just as good.

Paying yourself first, by taking a set amount from your salary on pay-day, will force you to change your spending. This is a very good thing. Eventually you will forget about your saving and not even miss the money.

Psychologically, it should just become another “fixed expense” in your budget (the Secret of the Elephant will help you understand budgeting). By paying savings at the beginning of the month, makes the money unavailable for spending.

Another important aspect of changing our savings habits is to make the savings automatic. You need to decide on a way that automatically deducts the money from your account at the beginning of the month, and transfers it into a savings account or other investment.

If it is not automatic and you have to transfer the money yourself, you will soon find reasons for not transferring it immediately. “I didn’t have the time”, or “I needed it for new school clothes for the children” and similar excuses will soon stop your savings plan from working.

Three ways to automate your savings:

Debit order

Stop order

Payroll deduction

There are different ways to make savings automatic: Some employers are willing to deduct the money from your salary and pay it into a savings account or investment, but you must ask for this; You can go to your bank and arrange a stop order; Some investment companies ask you to sign a debit order for the amount.

By implementing one of these methods, you will be on your way to disciplined savings, which is the true Secret of the Lion.

Fact file

Debit order

A debit order is an instruction to your bank to pay money from your account into another company’s account every month, on the same day of the month. The other company makes all the arrangements once you have signed a Debit Order Authorisation Form.

If you want to change or cancel the debit order, you need to make the arrangements directly with the company and not the bank. The company pays all the bank transaction costs with regard to the debit order. Make sure you only sign debit orders with companies you really trust, such as investment or insurance companies; Always check your bank statement to ensure that the correct amount has been deducted from your account.

Stop order

A stop order works in a similar way, but you personally make the arrangements directly with your bank, and not the other company. You have greater control and can change or cancel the stop order directly with your bank at any time. The bank will charge you a small fee for this service.

A word of caution!

You must always ensure that you have enough funds in your account to cover all your debit or stop orders. Banks charge or heavy penalties will fall on you if you don’t have funds in your account on the day that the automatic payments are due. Don’t let this happen to you!

Source: Businessdayonline