How to avoid the trap of living pay-by-pay

How to avoid the trap of living pay-by-pay

For some it seems that as soon as we receive our pay it isn’t long before we see our bank balance rapidly decline and we can’t wait for our next payday to come. But if you look at where your money goes and what you can cut back on, you may be surprised. And what’s more, it’s simple and will help you reach your savings goal sooner.

1. Lunch money: save $2000 per year
Buying your lunch plus a drink each day can cost you at least $10 each time, costing you approximately $50 a week and over $2600 a year. To make a dramatic difference to your savings, start bringing your lunch from home. There are a few options including leftovers, or buy the ingredients for a week’s worth of lunch like bread, tuna or cold meat, some salad and away you go. This would cost about $15 a week. Then why not reward yourself by buying lunch once a week or fortnightky.

2. Caffeine hit: save $650 per year
The average coffee costs around $2.80, so buying one every day equates to $14 per week, over $56 a month or $672 a year! You can save your latte money by investing in a cappuccino machine, that way you have an endless supply of coffee at home anytime you like. Or why not have a coffee once you get to work for free in your office kitchen? Or if you don’t like instant, switch to tea and benefit from all those extra antioxidants.

3. Kick the cigarette habit: save $1040 per year
With the cost of cigarettes skyrocketing in recent years, many smokers will be forking out $20 per packet. If you smoke a pack per week, that’s $1040 a year you could save if you quit. Heavy smokers who smoke three packets a week will save around $60 a week, which is $3120 a year – equivalent to a great overseas holiday. Not only will you feel healthier but you will save a load of money.

4. Think before you buy: save $595 per year
Each year Australian households throw out over $5 billion worth of food, according to a report by the Australian Institute. That’s about $595 per year per household down the drain. Before you head to the shops, make a list of what you need so you can avoid buying things you don’t. Another way to save is if by making use of all your food items before you throw them away.

5. Late fees: save $364 per year
Make sure you pay all bills before the due date to avoid being whacked with a late fee. A major culprit for late fees are video shops, which can cost you $7 per DVD so if you’re late once a week, that’s $364 per year alone.

If you don’t smoke, you could save yourself $3609 per year and for a heavy smoker who saved on all of the above and quit, you could find yourself more than $6700 richer after one year. And with great value online savings account currently on the market, depositing $550 per month in one of the top accounts such as ING Direct‘s Savings Maximiser at 6.1 percent for 4 months or UBank‘s USaver at 6.11 percent ongoing (when you deposit $200 per month), you could top up your savings even more quickly! So make sure you compare savings accounts online to make sure all your hard savings work really pays off.

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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.

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)

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.

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.

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.

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

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