You know the saying, “The journey of a thousand miles begins with a single step”. Well the same logic can be applied to saving money on a fixed salary. If done correctly, even the smallest amount of monthly savings, can go a long way.
Whether it’s saving for your child’s education or saving towards your retirement, getting into the habit of regularly setting any amount of money aside is the best way to secure your future.
And while there is no magic trick to become rich quickly, there are a few very small changes you can make to help build your savings account over time.
Set a goal
First things first: set a goal. Determine how much you need to save, how much you can afford to put aside and when you need to reach your goal by.
Work out a savings plan
Once you’ve determined exactly what it is you’re saving for, you need to work out a savings plan. Don’t be discouraged if you can only put away a small amount per week because even the smallest amount can make a huge difference in the long run.
For example, putting away $100 per month in a high interest savings account at 2.80 per cent per annum, will result in $6,447 over five years, $13,862 over ten years and $43,477 over twenty-five years.
Alternatively, putting $1,000 in savings into a high interest account that yields 2.80 per cent will result in $5,436 over five years, $11,677 over ten years and $36,511 over twenty-five years.
To make your own calculations you can look at the compound interest calculator on this site.
Set a realistic budget
By setting a realistic budget, you’re minimising the risk of failing. Remember, anything is better than nothing, so figure out what you can put away without hurting the hip pocket. It’s also important that you start small, gain consistency and increase regular savings after a review period.
Shop around for the best deal
It’s important that you shop around every now and then to ensure you’re getting the best deal on all your financial products and services. Saving $40 on your electricity bill and another $40 on your mobile phone bill, is an extra $80 a month in your savings account.
Also don’t be afraid to question your current situation. Find a reputable broker who knows where to find the deals that suit your circumstances. Did you know that if you have a mortgage, you might be better off utilising an offset account rather than a savings account? Do you know if your mortgage is a retail or a wholesale loan? Knowing and understanding these things can save yourself thousands on interest on your mortgage.
Review your subscriptions and save
Subscribing to apps and services has become the way entertainment is consumed, however it is very easy to sign up to a free introductory offer and forget about it, only to find you are losing $10 here, $12 there, every month for services you don’t use.
Review your bank account and credit card statements and unsubscribe from any service or plan you are not using. Also check you can’t get a better deal on the ones you are using.
Think outside the box
Look for outside the box ways to generate some savings. For example, consider renting out your property if you have been posted elsewhere.
Invest, invest, invest
A cash savings account isn’t the only option when it comes to boosting your long term savings. Investing is an option but this depends on your appetite for risk.
Some companies will offer services such as managed funds with a small deposit. One of the big benefits of managed funds is they cater for people of all risk categories. However, it is highly recommended you seek professional advice before investing savings.
Superannuation – voluntary contributions
Salary sacrificing your super refers to your employer paying some of your salary to your super account instead of into your regular pay packet.
It’s important to note that because salary sacrifice contributions are deducted from your salary before you’ve paid income tax, this super is taxed at 15%, which is significantly lower than your normal marginal tax rate.
The huge pro is that this initiative can be setup via your employer so it can happen automatically each pay-cycle.
Review your home loan
Most people don’t think to review their home loan rates or find a better rate.
Even a small cut in interest rates can make a significant difference to the amount you will save in interest payments.
Changing lenders can net big savings if you are able to get a decent cut in interest rates so it is worth the extra time and effort if the savings are good enough. A savvy broker can help you understand the pros and cons of changing lenders.
With interest rates so low at the moment, home finance is very competitive and the consumer has the upper hand as banks compete with cut price low frills products which can be accessed through a savvy broker.
Don’t give up!
Last but not least, don’t make the mistake of adopting the set and forget strategy. All savings plans need to be revised on a regular basis. Make sure you regularly check out what savings plans are available and if you can get a better interest rate than the one you are currently on.
Saving money on a fixed salary can be tough but if you stay focused and see results, you’ll be glad you did it.