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Five smart money moves

Five smart money moves

It’s easy to spend money without thinking – takeaway coffee twice a day, a round of drinks every time you go out, an impulse buy on the weekend. It’s often the little things that blow the biggest hole in your pocket, and it’s never too late to start being smart with your money.

1. Set a realistic budget

It may be financial advice 101, but having a budget is the smartest money move you can make – it 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. Without a budget and a clear picture of your finances, it’s easy to slide into debt.

Creating a budget sounds more daunting than it is. Begin by listing all your regular expenses – rent or mortgage, groceries, utilities, loan repayments, even your weekly takeaway coffee – as well as irregular expenses that pop up every now and again – insurance payments, clothing, car and house maintenance. Next, list your income. If you don’t have enough left over for savings after covering your bills, adjust your expenses until you find enough.

2. Develop a savings habit

Becoming a regular saver is the smartest money move anyone can make. Greg Pride, financial adviser with Centric Wealth, recommends setting aside a minimum amount each month in savings. Not only will this money accumulate at a greater rate than you expect, it can also act as a “cash reserve” if unplanned expenses crop up. “You need a little buffer to make sure you can deal with unforeseen events,” advises Pride.

Look for high-interest savings accounts, which reward regular deposits and charge lower fees.

3. Minimise unnecessary spending

Do you really need a takeaway coffee every morning? How about that gym membership you pay for but never use? Making small changes to your spending habits can make a huge difference to your bank balance. At $4 a pop, a takeaway coffee once a day on working days is costing you more than $1000 a year, so small sums are not insignificant when you look at the big picture.

4. Control your credit card… don’t let it control you

Credit cards are a great way to buy if you pay the full amount each month. However, if you pay only the minimum monthly repayments – or worse, miss a payment altogether – you may become trapped in a cycle of ongoing debt. Interest on credit cards can be as high as 20 percent, and the longer you take to pay off a credit card bill, the more interest you pay.

“You do not want to be stuck paying off high interest rates which can take many months or years to get under control,” says Michael Nowak, adviser & partner at Joe Nowak Financial Services Group and national president of the Association of Financial Advisers. “Always have a plan to pay down your credit.”

The smartest money move in this case is to treat you credit card like cash and pay the full balance each month.

5. Monitor your spending periodically

Nowak recommends a budget health check a few times a year to ensure you are keeping within your means. “Do this to keep your budget and spending on track and identify any issues that need to be addressed,” he says. “For couples, your budget is a shared responsibility and budgets should be monitored together.”

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Learn more about 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 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.

Do banks run credit checks on savings accounts?

When you apply to open a new savings account, some providers may conduct a credit check, meaning that they will ask a credit bureau for your credit history. This isn’t always the case on savings accounts though and depends on the provider, as you aren’t borrowing money. 

As you are opening a savings account and not borrowing funds, this credit check is considered a soft inquiry and should not affect your credit score. If the bank has run the credit check, you can often still open a savings account even if you have a poor score, provided you meet other requirements. 

Should I open a Commonwealth locked savings account?

If you have trouble saving money, a Commbank locked savings account could be a potential solution. A locked savings account won’t let you make withdrawals and as such, it can help you grow your savings balance if you keep topping it up. 

The Commonwealth locked savings account advertises high-interest rates and minimal maintenance fees, along with a host of other incentives that will encourage you not to touch the money. 

The account offers a higher interest rate for each month that you make limited or no withdrawals, as well as regular deposits. 

To qualify for a Commonwealth locked savings account with the advertised features, you will need to fulfil specific criteria such as:

  • Depositing a fixed minimum amount into the account every month.
  • Making a fixed number of deposits each month.
  • Making a minimum or no withdrawals each month.
  • Maintaining a minimum account balance.