How to reach financial goals

How to reach financial goals

If you’re saving for a holiday, a new car or even a home deposit, it can help to have pointers to guide you.

Sure, a high-interest savings account is a good start for scoring interest and keeping your hard-earned cash locked away for a period of time. But in terms of reaching your financial goals, how do you motivate yourself?

Dreaming of white sand and palm trees?

Expedia recently released its 2014 Insiders’ Select List, which outlines the hottest hotels from around the globe. The top pick was California’s Lakehouse Hotel and Resort. Indonesia’s Bali is a haven for holiday makers – Seminyak’s Blue Karma Resort scooped up second place.

Saving for a home deposit or retirement is smart, but remember that a little rest and relaxation is important too. There’s your first tip to saving for a financial goal: Have something to look forward to within your means, whether it’s a relaxing long weekend or annual overseas trip.

“Although many Australians are experiencing a shortfall of cash between pay cheques, these households are likely to be including savings and debt repayments into their monthly commitments. With this in mind, Australians continue to take a sensible approach to household financial management,” noted John Arnott, ING Direct Executive Director of Customers.

By being proactive about your finances and repaying debt, you’ll feel like you earned that fantastic holiday.

Need a new car or a property upgrade?

Sure, it’s great to see your high-interest savings account growing over time. As much as we’d all love a holiday in an exotic location, sometimes life’s practicalities get in the way.

If your car is spending more time at the mechanic than in your garage, it might be time for a new vehicle. Perhaps you’re done with renting and want to start building up equity in your own property. 

There we have the second tip to saving for a financial goal: prioritising. 

There’s no point enjoying a luxurious holiday if you’re going to return to an expiring lease or broken car. By contrast, if you’re in dire need of a little rest and relaxation, have some annual leave saved up and your living situation is stable, you’d be better off treating yourself to a rejuvenating getaway.

Set a time limit

Are you racking up big dollars on your credit card and struggling to see how you’ll save for a holiday, new car or home deposit?

Here’s the third tip for saving for a financial goal: Set yourself a time limit for paying off high-interest debt, whether you’ve taken out personal loans or have been relying on your credit card too much. 

If you continue to pay off debt at the minimum rate, it’ll be a long time before you can realise your financial goals. Once you’ve paid off this kind of debt, you can focus on making some serious savings.

Start small, then reach for the sky

Let’s say you’re saving for a house. If you want to avoid Lenders Mortgage Insurance, you’ll need a 20 per cent deposit. 

To lock in a $400,000 property, you’ll therefore need an $80,000 deposit. That sure ain’t chump change — in fact, such a large amount can be a little daunting. 

Here’s your fourth tip: Start with small savings goals, so you can check them off faster. For instance, your first goal might be to save $5,000, then $10,000, and so forth. By achieving smaller goals more frequently, you may find yourself a lot more motivated.

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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.

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

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 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 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 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.

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.

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.

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)

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 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 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.