Estimated reading time: 13 minutes
Key Takeaways
- Saving money requires commitment and small lifestyle changes, rather than drastic measures.
- Automate your savings to reduce the temptation of spending and make saving money a habit.
- Track your expenses to understand where your money goes and identify non-essentials to cut back on.
- Avoid impulse buying by making lists and setting spending limits to stay focused on saving money.
- Utilise schemes like the First Home Super Saver scheme for first home buyers to maximise your savings effectively.
How Can I be Great at Saving Money?
To save money, you don’t need to make huge changes to your lifestyle. You don’t have to somehow find a job earning 5 times your current salary. What you need is to simply make the decision and commit to saving some money, however much or little that may be.
Watching your savings grow toward goals like a home or a comfortable retirement is genuinely motivating. The hardest part is simply deciding to start; once you do, you’re already on the right track.
Money Saving Tip:
Invite friends over to your place instead of going out. A barbeque in the back yard, with everyone chipping in, means you don’t compromise on fun to save more cash!
Make Savings Happen: Automate Your Finances
Automating important repeat tasks makes your life (or a business) more efficient. This applies to your savings as well – and it takes the stress and indecision out of saving money.
The best habit of successful savers and entrepreneurs is to eliminate repetitive decisions about saving. That makes saving work better, and it’s just easier.
When you transfer money into your savings account, it should just happen. Don’t make saving an option or a decision each time. Because if it’s “manual” then like most people, you might delay saving or divert money to short-term purchases that aren’t really important for your life.
Automating your savings takes human error – or lack of commitment – out of the equation. Set up a direct debit into your designated savings account so that your extra income is whisked away from temptation straight away. Every payday, some of the money goes to a separate savings account. After it is set up, you won’t give that extra money a second thought.
Increase Your Savings as Your Income Grows
When you get a salary increase, before you do anything with the extra money, increase the amount you save – by at least the same percentage as your raise.
So a 5% salary increase means a minimum 5% increase in how much you transfer into your savings. Obviously if you can increase that further, do it, before you get used to spending the extra income from your salary increase.
What if You Can’t Afford Your Savings Plan?
Don’t panic and stop saving. That’s the worst thing you can do for your future saving goals.
Remember, if you set up an amount for automatic savings and it turns out you don’t have enough left to cover your basic expenses, you can trim it back so you don’t struggle to pay bills or other important expenses. But, try not to reduce your savings amount just to get extra ‘play’ money. That’s a common mistake that people regret a bit later.
Do You Know Where Your Money Goes?
Knowing what you spend is the first step in knowing what you can save. It’s often a bit of a shock when you sit down and work out what you spend each month on “non-essentials”.
If you haven’t already done this, check your bank statement and credit card and track your cash spending for a little while. Then, write your weekly/monthly expenses into two lists: the essentials and the non-essentials.
Take a good look at the non-essential list. Can you trim some items from this list, things you don’t really need to buy? Even if you don’t eliminate a lot of items, you can usually cut down the amount you spend on those things.
Saving money doesn’t mean you need to stop having fun. Just choose different activities, like hiking, that don’t cost money.
Beware of The Impulse Buying Trap
Saving Money? Stop Impulse Buying!
Are you guilty of impulse purchases? A lot of us are. Retailers are very good at enticing us with discounts, two-for-ones or add-on specials. Online it’s hard not to be tempted by the items that pop up in your social feed everyday.
Many of us get into a habit where we get a little “dopamine hit” by clicking a late-night online purchase. When it gets bad, some people don’t even remember all the little purchases they made, until they arrive in the mail later. That sort of “constant buying” can get very expensive, when you add it up. And often, we buy things that have little meaning or value to us.
“Expert tip: Convert your online shopping impulse into a saving impulse. Don’t get a dopamine hit from online shopping – get that satisfaction from adding money to your savings.”
Digital marketers and retail merchandisers make it very easy to fall into bad habits that are hard to stop. So, to save money efficiently, you need to battle the beast and commit to stop unnecessary spending.
A few tips to help you stop impulse buying:
- When you go out, leave your credit card at home. This reduces the temptation to make sudden purchase and it gives you some “cooling off time” to think more carefully about whether you really need something.
- When you shop, first write a list of what you need to buy. Simply don’t buy anything that’s not on that list.
- Give yourself a ‘play money’ limit – a limit for all non-essential purchases or expenses. It doesn’t need to mean you can’t do fun stuff that you like – it just means that fun spending is not a daily random habit – it has limits.
- Don’t visit a shopping centre unless you really need to. This can really cut down impulse spending and after a couple weeks, you might not even notice the lifestyle change.
- Always eat before you go to the supermarket. When you are shopping for food, a full tummy means much less temptation to buy extra treats.
How Do You Save Money if You’re in Debt?
The biggest block to saving money is existing debts. But that is fixable!
First, if you have debt with high interest, like a credit card, that debt will grow faster than any savings or investment can grow. You need to get that debt sorted before you can really get savings working for you.
Now let’s look at some ways to tackle this.
- Prioritise debts with high interest, like credit cards. These are the ones you pay off first, because these debts can grow quickly all by themselves if you don’t stamp them out.
- If your debts are affecting your life negatively, consider re-structuring or consolidating so that your debt is more manageable. Talk to a professional who can help you get on track.
- Never rely on payday loans or anything like that. Stop taking money – or buying things – that you have to pay for later. If that seems harsh, don’t worry. After your debts are gone, your life gets back to a much happier ‘new normal’.
- Save something, even if it’s just a few dollars a week, $10 a week is still $520 a year. Never give up on your saving goals!
Small and relatively painless adjustments can boost your savings without hurting your lifestyle.
Life Tweaks That Help You Save More Money
Here are a few money saving lifestyle tweaks to help you save more:
- SAVE YOUR TAX REFUND!
Your tax refund will give your savings a healthy little boost each year.
- Keep the catch up cheap
If you usually meet friends or family for lunch or at a shopping centre, meet at the beach or a park instead. Switch retail therapy and expensive lunches for nature therapy and a picnic.
- Limit the café coffees
Do you really need that coffee from the café every morning? Ditching your barista made caffeine fix on the way to work will save you over $1300 a year!
- Boost your health
A big one: Quit bad habits like smoking or midweek drinking and see one of your biggest expenses disappear. The money will be a BIG boost for your savings – and your health.
- Set and stick to goals
Set saving goals and stick to them. When you commit to reaching small goals, the bigger goals become a reality far faster.
- Get money smart
Take a few minutes to educate yourself about money, just a little bit every few days. For example, get a subscription to Money Magazine or read an online money or investment article at least 3 times a week.
- Make ordinary things cheaper
Take your own snacks to the movies, car pool to work, take your lunches to work and choose generic brands. Then, save the difference.
- Remember saving isn’t a punishment
A lot of events, galleries and museums have free entry and there is always plenty to do and see in the great Australian countryside. Google “free events in my city” and you’ll be surprised how much is going on.
- Bring the fun home
Invite friends over instead of going out. Try “pot luck” and get everyone to bring a plate of food or something for the barbecue. It’s fun AND you don’t pay for everything!
- Pay less tax on your savings
Pay money into your mortgage. You pay off your mortgage faster and pay less interest. Saving money in an “offset account” could mean you pay less on your mortgage, in total.
- Work hard on debts
If you save money in a low-interest savings account, but you pay ten or twenty per cent interest on a lingering (or growing) credit card debt, that means you are going backwards. A credit card balance does not need to be part of normal life – keep your monthly credit bills at zero so you can stop paying extra interest money to the banks, then you’re set to get ahead financially.
- Claim ALL your tax deductions
Make sure you claim all your deductible expenses and keep all your expense receipts throughout the year, so your refund amount is as healthy as possible. Use a tax agent like Etax, at tax time, so you get the right advice.
The million-dollar question: “How can I save a million dollars?”
Have you ever thought about saving your way into the millionaire club? Yes, it is possible. Even people on modest incomes can become millionaires.
The official MoneySmart website from ASIC has a good savings calculator so you can work out how to reach that magic, million dollar number. ING Bank also has its own savings goal calculator.
With the help of compounding interest, you can do it! But you need to start now, and stay committed.
Let’s look at an example:
(Using MoneySmart website compound interest calculator)
If you are 20 years old, you have $0 in savings and you commit to saving $500 a month at an average return of 4% per year for 3 years, $750 a month for 10 years and $1,000 a month for 5 years, you’ll have saved $1,032,775 when you’re 65.
You can go faster than the calculator suggests. This calculator doesn’t include other factors that will help you save:
- You will probably increase your monthly saving amount as your career, and salary, evolves.
- Over time, the average interest rate will probably be a lot higher than the conservative 4% we used in this calculation. If the interest rate is double, your savings skyrocket over time.
- Investments you make along the way, such as property or shares, may increase your assets and overall wealth, considerably.
- Unexpected windfalls, work bonuses or inheritances could boost your savings over the years.
- Save the ATO refund from your tax return every year. If you get an average tax refund of $2,000 per year, in just ten years (with interest) you could save almost $27,000 more!
Anything is possible when it comes to saving money. The trick is to focus on saving as much as you can, as regularly as you can. And make it happen automatically without constant micro-decisions like “should I save or should I buy a better microwave”. Those decisions can sometimes be self-defeating. So make savings happen first.
It may seem like a tough journey in the first few weeks, but once you start saving even if it’s only a few dollars, you really will be surprised at how much satisfaction you get when you watch your money grow.
A boost toward your first home: FHSS
The First Home Super Saver scheme or FHSS helps first home buyers save for their first home – faster. Basically, FHSS means you can put extra money into your superannuation fund, temporarily, saving money while you pay less tax. Later you can withdraw that extra money to help buy your first house.
The basic details:
- Pre-tax contributions to your fund – and earnings on investments – are taxed at 15% rather than the marginal tax rate.
- When the money is withdrawn it is taxed at the marginal tax rate less a 30% tax offset.
- First home buyers can save up to $15,000 a year into their super accounts as extra contributions to be released under the FHSS scheme. The release limit is $50,000 across all years.
- Couples can combine these extra savings toward a single first home purchase.
Plus a little help for downsizers?
It’s also worth noting a bonus for mature home owners (65+) who plan to downsize. A contribution of up to $300,000 of the proceeds the home sale can be made into your Super, in addition to existing caps. However, this change to a superannuation balance will affect the age pension assets test. Talk to your superannuation advisor before you sell up.
Frequently Asked Questions
Automate it. Set up a direct debit into a separate savings account on payday so the money moves before you have a chance to spend it. Starting small is fine — the habit matters more than the amount.
Check your bank and credit card statements and track your spending for a few weeks. Then split your expenses into essentials and non-essentials — most people are surprised by how much the non-essentials add up to.
A few simple tactics help: write a shopping list and stick to it, leave your credit card at home when you don’t need it, avoid shopping centres unless necessary, and give yourself a set “play money” limit each week for non-essentials.
Tackle high-interest debt first, particularly credit cards, as these can grow quickly and cancel out any savings gains. Once debts are under control, even saving a small amount each week will start to add up.
Absolutely. Putting your tax refund straight into savings each year can make a meaningful difference — saving an average refund of $2,000 a year could add up to nearly $27,000 over ten years with interest. A registered tax agent can also help make sure you’re getting the full refund you’re entitled to.
Disclaimer: These money saving tips are general in nature and intended as ideas for consideration only. Before you make any changes to your financial habits, talk to a professional financial adviser to get advice tailored specifically to your own circumstances.
