These straightforward steps on how to save money will help you achieve a lifetime of financial goals.
Tucking away money each week in a safe and untouchable place can be near impossible for the undisciplined — it’s usually far too easy to get our hands on any excess cash we may have stashed away. And we’re a divided bunch in our approach to saving, MoneySmart research shows men are “fast and determined” and save for one thing at a time, while women tend to be “slow and steady” and multi-task their savings hopes.
But when Australians do decide to get serious about saving it’s usually so they can realise the great Australian dream of owning a home (36 per cent) or to fund renovations (14 per cent), while others prefer to save for a holiday (47 per cent.)
So if you are planning a savings strategy, we’ve quizzed the experts and here are our seven steps to success.
1. SETTING A GOAL
The dream of a wad of savings can become a reality if you set realistic goals, the Australian Securities and Investments Commission’s MoneySmart senior executive leader for financial literacy Miles Larbey says. “Have an idea of how much (the thing) you are saving for is going to cost and have a clear goal in mind,’’ he says.
“And with this you need to have a plan of how much money you need to save per fortnight or per month.” A good start is to work out the amount you are trying to save from each pay cheque, whether it be weekly, monthly or fortnightly.
2. CREATE A BUDGET
Boost Juice founder Janine Allis, one of Australia’s most successful business people and star of Channel 10s Shark Tank, knows all too well about creating budgets. The mother of four says money was extremely tight for the first 40 years of her life.
Now a multi-millionaire, with more than 400 juice stores nationwide and in 12 other countries, Allis says being a successful saver involves going back to the basics. “Stop and look at all your expenses and, without even getting a job with more money, look at what you spend and try and be smarter with it,’’ Allis says. “Stick to a budget is the way to start.”
Map out a weekly budget by breaking down all your expenses into categories, for example rent/mortgage repayments, utility expenses, insurance costs, transport, entertainment and children to get a clear picture of your weekly expenses. Then work out what your incoming funds are and how much money you have to spend and save each week.
3. SEPARATE ACCOUNTS
Allis says stashing savings in an account that is hard to access prevents you dipping into your hard-earned savings when temptation arises. “I had two accounts, one was a savings account and one was something I could work with (a transaction account),’’ she says.
For instance term deposits and online savings accounts don’t have cards linked to them so it removes the likelihood of you accessing them when you’re out shopping or having a drink with friends on a Saturday night. And look for a good rate, many online savings accounts offer rates less than four per cent but some have advertised headline rates that are higher, often for an introductory period.
4. CUT BACK ON COSTS
Buying takeaway coffees, lunches, bottled water and driving to work instead of using public transport are some simple expenses that you can cut back on to reduce your weekly costs. Buying a daily coffee for $3.50 quickly adds up to $24.50 per week so by cutting this out you’ll save about $1274 per year.
Consider making instant coffees instead of buying them or keep tea bags at work to cut down daily caffeine expenditure and have some snacks in your drawer for when you’re hungry. Forking out for daily lunches while at work is another unnecessary and hefty expense — if you spend $12 a day it adds up to $60 per week and more than $3100 a year.
Sign up to your favourite shopping sites and places that you frequently buy from so you can take advantage of specials. Supermarkets often have discount racks and reduced prices on items that can only be kept for a short amount of time, for instance bread and dairy at the end of each day.
5. MAXIMISING YOUR MORTGAGE
Interest rates on savings accounts remain very low so clever management of your mortgage, if you have one, can also be a strategy for saving. Mortgage offset accounts — day-to-day transaction accounts linked to your home loan — are a great way to save because the money parked in these accounts automatically reduces the interest paid on your loan.
For instance if your home loan is $300,000 and you have $10,000 in your offset account, then you’ll only pay interest on $290,000. Given most variable rates on home loans are around five per cent, you’ll save more money reducing your monthly interest charges than waiting to collect measly returns from a term deposit or online savings accounts.
This is true of any debts you may have, including credit cards and personal loans: pay off debt first and then start accumulating savings.
6. EMPLOYER WITHHOLDING TAX
If you cannot resist the urge to dive into your savings, says Rising Tide financial planner Matt Hale, get someone else to do it for you. He suggests contacting your employer and asking them to hold back 5 per cent more tax than you are required to pay which will ensure a fat refund come tax time.
“Doing this means the savings are kept out of sight and you can be assured of a nice big refund when it comes to tax return time.’’ While this may not be the optimum savings plan, as you will forgo interest that you would otherwise earn if you parked the extra money into an online savings or term deposit account, it will guarantee you a lump sum come tax time.
7. WATCH YOUR PROGRESS
It’s all well and good to have a savings plan but it’s also critical to check your progress so you keep the momentum up. Larbey says it’s a case of making sure you “don’t set and forget.”
“Have a specific time frame in mind,’’ he says. “Our research also found that telling family and friends about your goals can also help you stay motivated because you’ve made a commitment to try and reach your savings goals.”
MoneySmart has a free mobile phone app, TrackMyGOALS which will also help you stay focused.