Putting money aside in savings is an important buffer against financial shocks, such as illness or a sudden job loss. But if you’re finding yourself talking about saving more but not actually doing any saving, here are five ways you can start saving now.
Ask the boss’s help
If discipline isn’t your strongest trait, hand over the reins to your boss. Dominique Bergel-Grant, director of Leapfrog Financial and a committee member of the Association of Financial Advisers' Inspire initiative, suggests asking your employer to deposit any pay increases into a separate savings account instead of your regular transaction account. Most employers are happy to lend a helping hand by making two separate deposits each payday. “If you don’t see it, you’re not going to spend it,” she says. “And you won’t even feel it.”
Another trick is to set up automatic direct debit deposits from your transaction account into your savings account on a weekly, fortnightly or monthly basis.
Set a goal
Setting a savings goal will help you begin saving and keep you motivated to keep going – the goal is your reward for any sacrifices you make while saving. “Setting a goal really is the best way to save,” Bergel-Grant says. “If you’re a first-home buyers, talk to your lender to know how much you need to save for a deposit and set that amount as the goal.”
Without a goal, it’s easy to withdraw from your savings account for various reasons or succumb to the temptation of impulse buying.
Bring in reinforcements
Saving alone can be hard work and at times disheartening. So Bergel-Grant recommends recruiting a group of trusted friends to help boost your motivation and chances of success. “Create a money group with friends you trust, set savings goals together and share your goals with each other,” she says.
Your money buddies can act like personal trainers – providing the right motivation and holding you accountable. “The reason people often fail to save – or fail to stick to a fitness regime – is because no one is holding them accountable,” Bergel-Grant adds. “So hold each other accountable.”
Pay off your credit card
One of the first things any financial adviser will tell you is to get rid of credit card debt. Because interest on credits cards is so high – average credit card interest rate in Australia is around 17 percent – unless you pay off the full balance on your card each month, you can end up paying twice (or more) as much as the original purchase price. In other words, eliminating your credit card debt can you save a lot of money in the long run.
Get an offset account
If you have a mortgage, a great way to start saving is to set up a mortgage offset account – a savings account that is linked to your mortgage. The balance in the savings account is offset against the loan, therefore allowing you to reduce the loan principle faster. This will help you pay off your mortgage faster and potentially save you tens of thousands of dollars.
Another benefit of an offset account is that it is not subject to tax, whereas you pay tax on any interest earned on a high-interest or regular savings account. That’s more money you can save!