Financial adviser shares 10 tactics for 2020 to help you save for an emergency fund or major milestone.
More than any other year, 2020 has shown us how important it is to have an emergency fund should a loss in income ever occur. Whether it is to see you through a period of unemployment, for a house deposit, or for the kids’ future, having a good level of savings can bring you a strong sense of security. Online financial information platform Money.com.au has compiled its essential list of top tips for all Aussies to help kickstart their savings.
Licensed financial adviser and Money.com.au spokesperson Helen Baker says: “Designing and sticking to a savings strategy requires a change in mindset and the formation of new habits. The first few weeks might be challenging, as it requires some sacrifice, but it soon becomes a ‘set and forget’ component of your financial life that brings a strong purpose and peace of mind knowing that you will face certain challenges and can work towards particular goals without facing a financial crisis. No matter your salary or financial goals, there are tactics and tools you can use to help you save tens of thousands of dollars.”
Money.com.au outlines its top 10 savings tips to help Aussies achieve their financial goals:
- Use the 50-30-20 strategy to control your spending. This simple yet effective budgeting method involves dividing your after-tax income into three categories to help you take control of your spending. Put 50 per cent of your net income towards ‘must-haves’ such as rent, utility bills, school fees, groceries, and insurance. Then reserve 30 per cent for your ‘wants’, such as dining out, fashion, and entertainment, which will allow you to reward yourself in moderation. Set aside the remaining 20 per cent for loan repayments or building up your savings.
- Implement a waiting period before purchases to avoid impulse buying. Spending on ‘wants’ can often be driven by emotion or boredom – and it doesn’t help when shopping is accessible 24/7 through interactive online shopping sites that regularly update their stock. Prevent impulse buying of, and overspending on, your ‘wants’ by enforcing a waiting system. This tactic ensures you to a step back – even for an hour – to assess whether the transaction is really worth it. If you are trying to form a new habit and the temptation is very strong, you might benefit from implementing a 24-hour or week-long waiting period.
- Consider salary sacrificing to superannuation. If you are looking to save a deposit for your first home, the First Home Super Saver Scheme enables you make voluntary contributions in your super fund and withdraw up to $30,000 of eligible contributions towards your home deposit. This means that concessional contributions made to an approved super fund is taxed at just 15 per cent rather than the marginal rate of up to 46.5 per cent on your pay. For example, if you have an income of $70,000 and want to put $15,000 towards a home deposit, you can end up paying nearly $4,875 of that $15,000 in tax. In contrast, if you sacrifice $15,000 a year into your super through the First Home Super Save Scheme, you pay just $2,250 in tax per year and could have around $25,000 available for a home deposit after two years.
- Avoid signing up for financial products on your partner’s behalf. Money plays a role in many decisions you make as a couple and failing to talk openly about it can bring challenges down the track. Ensure you make decisions together and work towards common financial goals. However, it’s best to avoid taking out a credit card, loan, or mobile phone plan on your partner’s behalf, in your name. If your partner falls behind on repayments, it can affect both your credit ratings. If you breakup and your partner accumulated debt, and you are married or defacto, you will be liable for their debt. It is also important to avoid rushing into joint bank accounts or co-signing loans, particularly before you know what type of a money manager your other half is. While joint finances and accounts are common in long-term relationships and marriages, maintaining your own savings account and emergency fund is a vital financial protection measure.
- Wean yourself off credit card dependency. A clever strategy using multiple bank accounts could help wean you off credit card dependency. Open three bank accounts: one for everyday spending, one for savings, and one for bill payments. Work out how much money you need to pay your bills every month. On the day your pay goes into your everyday expense account, transfer those funds into your monthly bills account, from where you could set up direct debit bill payments. Work out how much money you would like to save each month to meet your financial goals. Also on pay day, move this amount into your savings account. The rest of the funds in your everyday spending account is for discretionary spending.
- Hide your savings account. When you set up a savings account, to reduce the temptation to dip into your savings, ensure you cannot access it through your phone banking app. Another useful tip is to choose a savings account that charges withdrawal fees. The harder and more expensive it is to access this account, the more likely you are to realise your savings goals.
- Cutting your spending is more valuable than increasing your income. Smart spending can be just as good, if not better, than earning a high income. Look at expenses that you can cull, such as a subscription that you rarely use. Do not do it to the point that it affects your mental health. For instance, if dining out is a necessary de-stressor once a week, it is best to avoid cutting this expense. Also, take care to look after your existing items so that you can use them for a longer period.
- Remove spending temptations. Know your spending weaknesses and remove the temptations that take advantage of them. For instance, unsubscribe from shopping websites e-news if you are an avid online shopper. Or leave your credit card at home (rely on your debit card) when you are out shopping or dining, so that you spend only a pre-planned amount.
- Create a bill-paying strategy to avoid incurring late fees. Outline all your bills in a spreadsheet, ensuring you make a note of when each payment is due. Go through each invoice to figure out how many days you have before incurring a late fee and put reminders in your calendar. Ensure your calendar gives you adequate time to thoroughly check invoices and make sure you are not being overcharged. Group your bills in categories of under $100, $100-500, and $500-plus. Smaller bills, such as mobile phone plans or other monthly service utilities, can be paid by setting up automatic payments. Larger bills, such as tax, rent or mortgage repayments, require more diligence. It is also crucial to pay substantial bills on time to avoid incurring a bad credit rating.
- Use budget spreadsheets and calculators from financial information sites. There are good financial websites that offer budgeting tools to help you manage your cash flow and improve your savings. For example, Money.com.au offers a free budget planning spreadsheet to ensure you stick to a savings and spending plan. Tools such as the pay calculator also allows you to clearly see how your income and taxes are broken down, to give you a realistic picture of your spending limits.
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