Over the last few years many Australians have found that making ends meet has become more difficult as the effects of the Global Financial Crisis hit investment markets and costs of living has increased. This has meant that for many Australians, the ability to save has been challenging.
What hasn’t changed over recent years is the process of determining the best way to save, whether it’s putting money away into a bank account, contributing to superannuation or paying off debt. Yes, that’s right – paying off debt, especially debt on an asset that has potential to grow in value is a form of saving.
The first thing to do, whether you earn a high or low income, is to work out your budget as accurately as possible. This is the only true way to gain an understanding of where your money is going and which potential cutbacks and savings, if any, can be made. Whilst it may not be the most exciting exercise it will reveal which surplus funds you have to potentially put away or ‘save’. To get an accurate picture of your situation you may need to keep your receipts and/or note your costs over a period of time, say monthly or, better still, over a whole year. Annual receipts will also show semi-regular costs such as car registration or ‘one offs’ such as home maintenance jobs.
Another important part of this process is to look at your current situation; do you have debts you need to repay? Do you have short- or long-term goals for which you will need to save? This should tell you how much is required and by when you can hope to achieve your goals. There are a number of financial calculators available online, including those for budgets and for saving. NICRI has useful calculators such as these available as part of its free service. You can access these in the ‘moneymap’ area of the NICRI website www.nicri.org.au.
Now that you’ve determined how much you can put away, you need to consider where those savings will go. If you have existing loans you can consider making extra repayments, which can reduce your interest charges. However, you will need to check to ensure you will not be penalised for making these extra payments. Generally speaking, penalties only apply to fixed rate loans, so be sure to check with your provider. This course of action allows you to own the asset you are paying off sooner and free up more disposable income earlier. If you are not paying off debt, you can consider putting it aside into a savings account, managed fund or superannuation. Try to put savings aside on a regular basis as this reduces the risk of spending this money, and you learn to live without those funds much more easily.
Click NEXT for tips to help with your savings plan.
A few tips when considering a savings plan:
- Check with your financial institution if it has special savings accounts that offer higher or bonus interest if you regularly contribute. Government Income Support recipients can ask about deeming accounts or other higher interest paying accounts. Centrelink deems that you earn a certain rate of interest on your financial investments, so you should look for an account that matches or exceeds that rate.
- Check that no fees are charged on the savings account or to have the funds transferred to the savings account.
- Consider your expenses carefully. Any areas that you can cut down on will go toward reaching your savings goal sooner.
- Have the money transferred to the savings account from your transaction account on a regular basis, ideally as soon as your wage or pension payment is credited.
- Consider consolidation of debts. If you have more than one loan outstanding, consolidating them may reduce your ongoing commitments. Check with your loan provider for options.
- Consider paying off your mortgage on a fortnightly basis as opposed to monthly, this can also save on interest.
- Consider paying bills in regular instalments, but ensure that there is no extra cost for doing so. Paying these regularly helps keep abreast of these expenses and makes your budget more accurate.
- If you wish to save for long-term growth, many managed fund providers allow regular savings plans for as little as $100 per month after the initial deposit.
- Check with Centrelink and/or your state or territory government to ascertain if you are entitled to any concession cards. This may reduce some costs such as rates and utilities.
- Use tools to assist such as budget and savings calculators. Many can be found online. If you are having difficulty financial counsellors who may be able to assist with your financial position are available.
Finally and importantly, you need to instil self-discipline. Regularly updating your budget and keeping control over your spending will go a long way towards ensuring that you meet your savings goals.
The National Information Centre on Retirement Investments Inc (NICRI) is an Australian Government funded, independent consumer agency providing information to the general public on investment products.
Further information on saving and other financial planning issues for pre-retirees and retirees can be obtained from NICRI toll free on 1800 020110, email [email protected] or write to PO Box 1339, Fyshwick ACT 2609. NICRI information leaflets and handy reverse mortgage calculators are also available on its website, www.nicri.org.au ©.
Prior to acting on information provided in NICRI articles, it is strongly recommended you confirm details in relation to your personal circumstances, with any relevant government department and your financial advisor/representative.