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 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.

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.