5 things most likely to trip up your savings plans

5 things most likely to trip up your savings plans

We all know the importance of saving, and most of us have savings goals we want to pursue, but sometimes life gets in the way of the best kept financial plans.

Whether it’s general cost of living pressures or a weakness for the latest gadgets, recognising savings barriers is an important step in overcoming them.

Below are five of the most common barriers to saving and practical ways you can overcome them to become a master of your personal finances in no time.

1. The unavoidable: living expenses

Whether you’re in the renting or home-ownership camp, housing costs are inevitable. Even so, most experts will tell you that you should only spend a third of your income (or less) on maintaining a roof over your head.

If you are spending more than this, particularly if it’s on a mortgage, then technically you’re in “mortgage stress” and this is not a good place to be. Savings can get pushed out of the picture because housing and living expenses have eaten away your monthly income, without you even noticing.

Even though you may love the house or area you live in, if you’re serious about saving then some tough questions have to be asked. Is it time to consider downsizing? Or maybe you’d be financially better off in a less expensive area? The money you’ll save from a move such as this could help you reduce your outgoing expenses and re-focus your efforts on long-term savings goals. Another way to reduce your mortgage is to shop around for a better rate. There are plenty of lenders on the market that offer significantly lower rates than the standard variable rates offered by the major banks so it’s worth doing the research.

2. Dreaded debt

Australian’s are seemingly obsessed with the idea of buying now and paying later and our love affair with credit cards is well documented in the ever-rising credit card spend figures. But as we all know, there’s no such thing as free money, and the debt we rack up can seriously get in the way of being able to save.

Of course credit cards aren’t the only culprits. Once you factor in car loans, payday loans and of course the mortgage, most Australian’s have a sizeable amount of money owed to various institutions.

Consolidation can be a great way to tackle your debts head on and a low-rate personal loan is one way to do this. Personal loans are particularly good because they have structured repayments that will actually pay down your debt over a set period of time. Once you’ve finished paying off the loan, you can reallocate the same amount to a high interest savings account and you’ll have kick started your plans without outlaying any extra dollars.

If your debt is mainly on credit cards, a zero percent balance transfer deal could help you get a head start on paying off your dues. If the situation is a little bit direr and you’re not sure how to get back on track consider seeking professional advice from a free financial counsellor service.

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3. Life’s unexpected curveballs

No matter how well laid out your savings plans may be there’s no accounting for the costs in life that come out of nowhere. The best you can do to avoid these expenses completely throwing you off the savings path is to have an emergency fund.

Whether it be unemployment, a car accident or costly medical bills, a buffer of around $3000 can mean the difference between being completely thrown of course and a couple of financial missteps.

Also keep in mind that lenders and utility providers are likely to be more lenient if you call to explain your situation, which could mean the difference between a good credit rating and a horrible one.

4. Paying to learn

Education is an essential expense for most people and there is no doubt that completing a degree, diploma or certificate after school can be an important step in getting the career that you want. The costs associated with education however, can be massive and those unprepared to handle these expenses may find themselves unable to save while paying off these costs.

If you are a full time student you might be eligible to receive financial assistance through Centrelink’s Youth Allowance program. If you have time to pick up a job on top of your studies than this bonus money can go towards your savings goals.

Also, depending on which course you study, the government has various ‘HELP’ schemes that will allow you to defer paying tuition fees until you are employed and earning $54,126 a year or more.

5. Our obsession with shopping

Hand in hand with our credit obsession is Australia’s reputation as a nation of consumers. While the essentials such as food and clothing basics will always be on our outgoing expenses list, it’s the extras like gadgets and luxury items that can interfere with our savings goals.

One way to curb your spending is to write down everything you buy in a week and how much it costs. With any luck, the results will be enough to shock you into changing your ways.

Keeping your goals at the forefront of your mind can also be a great way of overcoming this barrier. Sure, maybe you could do with a $500 dog bed for Fluffy. After all he is a great friend and companion… but if that takes away from your long-term goal of a dream home or car, perhaps he might be OK with a $50 mattress. 

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Learn more about savings accounts

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.

What is the interest rate on savings accounts?

As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.