Five barriers to saving and how you can overcome them

Five barriers to savings and how to beat them

Even though most of us know the importance of saving, and have savings goals we want to pursue, sometimes life gets in the way. Whether it is everyday living necessities or your weakness for having the latest gadgets holding you back, recognising savings barriers is an important step in overcoming them. 

There are five common barriers to saving that most people face and the solutions to overcome them aren’t always easy but they are necessary if you want to reach your goals. 

1. The ultimate living expense

Whether you are in the renting or owning camp there are costs associated with housing that will always be inevitable. Even so, a common rule of thumb is that you should not be spending more than a third of your income on housing expenses. If you are spending more than a third of your wage paying off your mortgage you are technically in “mortgage stress” and this is not a good place to be. Saving is almost out of the picture if you are in this situation as housing and living expenses eat away at your income.

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. If you can’t afford to live in your home and save it’s time to consider downsizing or moving to a less expensive area to reduce your rent or mortgage costs. The money you save from a move such as this will put you on track to reduce your outgoing expenses and focus on your long term savings goals.

2. 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 expense may find themselves unable to save while paying off these costs.  

If you are a full time student the government can be of assistance to you during this time. By applying through Centrelink for Youth Allowance, depending on your personal circumstance, you should be able to receive some financial assistance to cover your living and education expenses. 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 such as FEE-HELP and HECS-HELP that will allow you to defer paying tuition fees until you are employed and earning $54,126 a year or more.     

If you’re a parent of a child and can see that education costs in the future will bar your ability to save for other things then start putting aside money from now in a high interest savings account. Being prepared will always pay off in the future. Keep in mind as well that now there is no benefit for making tuition payments up front for your child’s fees so deferring them through a HELP scheme is just as good of an option, and will put less financial stress on you now, as paying them upfront.   

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3. 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 that we rack up plus the interest we then owe can significantly 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. As this debt is accruing interest it should take priority over saving, to a certain extent, to avoid an ever growing debt balance.

Consolidation can be a great way to tackle your debts head on. Taking out a low interest personal loan can be one way to consolidate debts and figure out a neat payment plan that lets you budget in some saving along the way.  

If your debt is mainly on credit cards consider a zero percent balance transfer deal to 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.

4. 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 you want to be on is have an emergency fund that you can easily access in case of an unexpected event.

Whether it be unemployment, a car accident or costly medical bills having a buffer of around $3000 can mean the difference between being completely thrown of course and regaining your footing sooner.

Also keep in mind that lenders and utility provides will be lenient if you do find yourself in financial hot water and a call to explain your situation could mean the difference between using up all your savings and finding a manageable repayment plan.

5. Our obsession with shopping

Hand in hand with our credit obsession is Australia’s position 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 its costs. With any luck, the results will be enough to shock you into changing your ways. But really, the only way you’re going to achieve savings goals and beat temptation is by focusing on the long term rather than short term gains.

Keeping your goals at the forefront of your mind can 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 your dream home or car perhaps it’s no longer a good idea.

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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 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. 

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.

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 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 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 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 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.

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.

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.

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.

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.

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)

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