How to avoid summer money traps

How to avoid summer money traps

The summer months coincide with the Christmas season, tempting retail sales, school holidays and long nights made for dining out. It’s no wonder we end up spending more money than at any other time of the year.

With so many summer money traps ready to draw you into their clutches, it’s financially prudent to consider some savvy tips to avoid being broke by autumn.

Learn to budget

The key to avoiding any financial trap is to be prepared. Start by devising a 12-month budget at the start of each year and calculating how much you are likely to spend in the summer months on holidays, eating out more often and splurging at the post-Christmas sales. Make sure you minimise your spending in other months to account for the more expensive months.

“Allow for higher spending in summer in your budget and set money aside to cover it,” financial adviser Steve Crawford, director of Experience Wealth Advice, recommends.

“Some of my clients have a specific summer fund, which is a separate savings account that they prefill to use during the summer. When it runs out, they go back to normal spending levels.”

Set up your summer fund by opening a high-interest savings account and making monthly, fortnightly or weekly deposits.

Opt for less expensive activities

It’s not just overseas or interstate getaways that drain your bank account during the summer months. With warm nights beckoning, it’s easy to eat out more often or spend more time socialising in beer gardens, even if you stay at home. Crawford suggests balancing out money-zapping activities with cheaper alternatives.

“A Foxtel movie on demand costs from $3.95, whereas going to the movies can cost you as much as $50,” he says. A picnic or dinner party also cost less than hanging out at the newest hip bar.

Writing down your expenses as part of a budget helps you see what money traps you are falling into and you can adjust your spending accordingly. For young families, Crawford suggests trips to the park for informal sporting matches or bike riding, beach excursions and DVD parties.

Minimise impulse buying

At sale time, it’s tempting to buy something because it’s too good a bargain to ignore – even if it’s something you’re unlikely to use.

Crawford says the best way to minimise impulse buying is to hold off buying certain necessities – for example, that new suit you need for work or a new bed mattress – until the post-Christmas sales. That way you get your retail fix by buying (and saving money on) something you need instead of things you don’t.

Keep a lid on the air con

Feeling hot? Try to avoid turning on the air as a default position. Consider enforcing a rule to only use air conditioning on days when the temperature exceeds 30 degrees or use a fan instead. The average fan costs less than 1 cent per hour in electricity, while even the smallest sized air conditioner uses up 12 cents per hour.

Don’t beat yourself up about it

It’s not uncommon for people to experience high levels of anxiety over money at the start of a new year, according to Crawford.

“I’d hazard a guess that a lot of people who are in that situation fall into a pattern of silly season spending,” he says. “But don’t beat yourself up about it. Instead, put plans into place to stop it from happening again.”

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Learn more about savings accounts

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 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 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.

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 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 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 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.

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.

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. 

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 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 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.