Tips for trimming your household budget

Tips for trimming your household budget

From spiraling electricity costs to the rising cost of living, balancing a household budget is no easy task.

So where do you begin when seeking ways to reduce your household bills?

“Knowledge is strength. If you know where your money is being spent, that’s a good starting point,” says financial adviser Greg Pride, of Centric Wealth Advisers. “If you have an accurate record of your spending, it becomes apparent where a problem may be – it may be technology-related, it may be leisure-related or it may be clothing-related.”

Here are some areas to consider in your quest to trim your household budget:

Energy bills

With summer coming to an end it’s time to start cutting down on the air con use. Try using air conditioning only on days when the temperature exceeds 30 degrees or better still, 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.

It’s also a good idea to assess the energy efficiency of your home. The federal government’s Your Energy Savings website suggests sealing gaps and cracks, and covering fan outlets and fireplaces when not in use, to avoid up to 24 per cent of heat loss in winter. Smarter home habits, such as switching off appliances at the wall, reducing the amount of hot water you use and hanging out clothes to dry instead of using a clothes dryer can also reduce your energy costs.

Insurance costs

You can save hundreds of dollars by shopping around for a better insurance deal rather than sticking with the one you have. If it’s been a couple of years since you’ve looked at what’s on the market it’s definietly time to check again. 

If you are happy with the company you are with there are some small things you can do that might help keep costs down. This includes installing deadlocks and other security features on your home – and car – which can save you money.

Also keep in mind that bundling your home and car insurance with one provider can reduce your premiums.  

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Technology costs

Are you on an internet plan with all the bells and whistles, but only using half your allowance?

It’s a good idea to regularly review your phone and internet deals to ensure you are not paying for unnecessary features. Think about signing up for online streaming services instead of paying for an expensive Foxtel subscription. Again, bundling your home phone, mobile and internet can save you money so look for discounts on packaged deals. 

Credit trap

Credit cards are one of the great conveniences of modern life. However, you can pay a high price for that convenience if you don’t manage your credit card debt effectively.

With interest rates around 17 percent on average, you end up paying a lot more than the original purchase amount – unless you pay off your card in full each month. Make it a priority to pay off all of your credit card debt and then pay the balance every month. Throwing your money away on interest repayments is a sure fire way to ruin your budget plans. 

Cut back on extras

This applies to every member of the household. For adults, it may mean reducing or cutting out completely any reliance on takeaway coffee – a daily habit at $4 during the week can set you back more than $1000 a year. 

For the kids it may mean packed school lunches or second-hand toys handed down from family and friends. Extra-curricular activities for adults and children can cost more than you think. Look for free options for the kids, and cancel that gym membership you’re not using in favour of swimming or running.

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Learn more about 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.

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 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 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 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.

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 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 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

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 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

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 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 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 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.