5 tips to revamp your finances

Are you stuck in a debt trap or simply failing to make a dent in your savings account? Now may be the time to take a close look at your finances – it’s never too late to improve your money habits.

But where should you start? Here are five tips to revamp your finances.

1. Learn to budget

Budgets have an undeserved bad name but once you get the hang of them, they can make your life so much easier. A budget helps you escape the trap of living from one pay day to the next, and it’s a good way to find the right balance between spending and saving.

There are plenty of online tools and apps that show you how to draw up a budget and stick to it.

“Look at budgets as permission to spend money, rather than restricting your spending,” James Hand, financial adviser with Centric Wealth, advised.

2. Develop a savings habit

There are many benefits to developing a disciplined savings habit – financial freedom, the power to tackle unexpected financial emergencies head-on and the ability to pay for big-ticket items without having to rely on credit.

“Getting into a regular habit of saving is a good habit to have,” said Marc Bineham, director at Noall & Co and vice president of the Association of Financial Advisers.

“Start with an amount you won’t miss. That’s a trap we see people falling into often – they start too high and can’t maintain it.”

Sign up for a high-interest savings account and arrange weekly, fortnightly or monthly direct debit deposits. It’s a guaranteed pain-free method of establishing some financial security in your life.

3. Pay off credit card debt

With interest rates as high as 20 percent, credit card debt can end up costing you a lot more than your original purchase – and trap you in a cycle of ongoing debt. The smartest way to use credit cards is to pay off the entire balance each month and avoid a hefty interest charge.

If your credit card debt is unmanageable, consider moving the debt to a new credit card with an interest-free period and paying it off within the time limit.

4. Fall in love with compound interest

“Albert Einstein said compound interest is the eighth wonder of the world. It’s amazing how compound interest works and how few people realise what a difference it can make to savings or help reduce a mortgage,” Bineham said.

The longer you allow your savings to compound, the more interest you will earn – which is why it’s important to start saving at a young age. When it comes to mortgages, paying more than the minimum repayments can save you tens of thousands by attacking the compound interest.

“You can reduce a mortgage from 25 years to 12.5 years by paying just an extra 12 percent to 15 percent,” Bineham said.

5. Set goals

Having a goal, whether it’s a holiday, a new car or a deposit on a home, can help you focus on the big picture and provide the motivation you need to stick to your budget and improve your spending habits.

“Set yourself one-year, two-year and five-year goals,” Bineham suggested.

“You can have a short-term goal and a long-term goal at the same time. For example, a trip to Europe next year and a deposit for a house in five years. And write your goals somewhere where you can see them every day.”

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Learn more about savings accounts

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.

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.

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.

How can I get a $4000 loan approved?

While personal loans and medium amount loans don’t offer guaranteed approval, there are steps you can take to help increase the likelihood of your application being approved, including:

  • Fulfilling the eligibility criteria (providing ID, proof of residency, proof of income etc.)
  • Checking your credit history (you can order one free copy of your credit file per year, and make sure that there aren’t any errors that may be bringing down your credit score)
  • Comparing carefully before applying (making multiple loan applications can mean having your credit checked multiple times, which can look bad to some lenders and reduce your chances of being approved by them)

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.

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 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.

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

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.

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.

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.