Smart ways to spend less

Smart ways to spend less

There are some expenses you simply have no option of cutting back on – rent or mortgage expenses, energy bills, insurance cover and food among them.

Other budget-busting items are not so sacred and, with the help of a little self-control, you can stash more money into your savings.

Here are some smart tips for avoiding unnecessary expenses.

Consolidate your banking

Are you one of the many Australians with multiple bank accounts? Streamlining your banking into one spending account can help you save money, according to a 2013 University of Utah study. Researchers found that having a single bank account enabled people to keep track of money going in and out – helping them spend 10 percent less of their money.

Paul Cooke, senior adviser with Parker Financial Services, agrees that “less is more” and recommends opting for an offset account – a transaction account that is linked to your home loan. Your credit balance is offset daily against your loan balance to reduce the interest you pay on your home loan, which can shave years off the life of your loan and potentially save you tens of thousands of dollars in interest.

Take charge of credit cards

Another trick of the trade recommended by Cooke is to reduce the limit on your credit card. “Once you have a physical barrier to stop you spending over a certain amount it can be a wake-up call,” he says.

And like the danger of having too many bank accounts, Cooke advises sticking to one credit card. “By having multiple credit cards, again you can lose track of how much you are spending.”

Regularly review your expenses

“Most people don’t think about their spending, they just look at the money coming in,” Cooke says. The problem with that approach is that you end up spending more than you should on unnecessary items.

Keeping a record of your spending – start with drawing up a budget – can help you identify any areas of weakness. Perhaps you can cut down from two daily takeaway coffees a day to one – and save more than $1000 a year. Reviewing your expenses and conducting a budget health check a few times a year can help you cut out what you don’t need.

Resist the discount

Remove the temptation to snap up an impulse buy ‘bargain’ by unsubscribing from daily group deal newsletters, or exercising higher levels of self-control. “There are dangers in spending to save money,” Cooke says. “The bottom line is, do you need it and can the purchase be justified?”

Stick to the list

Cooke advises taking a shopping list with you when doing the grocery shopping to eliminate impulse buying. “When I go shopping without a list, I end up buying things we’ve already got or things we don’t need,” he says. “A list can help you be more efficient.”

And stick to cash

Using cash – including EFTPOS or a debit card – when shopping, rather than relying on your credit card, is another smart way to stay on top of your spending. It can act as a reminder to think about every purchase and decide if it’s a necessity or whether you can live without it.

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Learn more about savings accounts

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

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 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.

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 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.

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 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.

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.

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. 

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 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 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.