Getting into the savings habit is money-smart.
Work out what’s coming in and going out so you can set a budget to cut your debts and start taking control of your money.
Maybe you’re already pretty good with money. Maybe you’re not as good as you’d like to be.
Maybe you can start saving to cover emergencies or maybe you need to pay off your debts first.
Whatever you do, it’s like going on a diet or making a new year’s resolution. Starting’s simple but sticking to it is the test. Starting small and making good habits part of your everyday life is the key. It takes around 60 days to form a new habit and it doesn’t matter if you stuff it up once in a while.
So keep plugging away and your finances will be looking good before you know it.
Look at the money coming in and going out of your bank account so you can work out where you are.
Check your shopping receipts, bills, statements for bank accounts and credit cards. And don’t forget about what you spend money on less regularly. These could be birthday presents every few months or your rates or car’s WoF each year. Be honest about your spending, otherwise you’re only short-changing yourself!
Once you know exactly what’s going on, you’ll soon spot if you’ve got debts mounting up or where you can make those little savings that soon add up. For example, have you got a gym or magazine subscription you’ve forgotten about? Cancel it and instantly there’s extra money in your pocket.
You may not be able to change how much money’s coming in but you can definitely change how much is going out. Your budget should show your living costs, like your rent or bills, and your fun spending.
So that’s your budget – not super hard, is it?
Fun spending is what you spend on things you don’t need to survive, like holidays and dinner out with friends. But the fun stuff makes living worthwhile so don’t feel you can’t splurge a little on a budget. Of course you can – just make sure your fun spending doesn’t get so big you’re short of what you need to get by.
Make a plan to trim your fun spending so you’ll have more left over each month to pay your debts or start saving.
Remember to be realistic! Like a new diet, if you completely change what you normally do, you’ll find it hard to stick to your plans and you’ll fall back into old habits. So plan for treats, like brunch at your favourite café or cinema trips with the family. But think about splurging once in a while, not all the time.
When you’re forming good financial habits, it helps to bear your plans in mind. So what do you want to do with your savings?
Perhaps you’d like to do something in the next few years, like getting a degree, buying a new car or taking a dream holiday. You might be hoping to have kids, which means buying a bigger house and making sure you can cover all the other costs of having kids. Or maybe, further down the line, you’ve got your sights set on moving into a bigger house or retiring in style.
Make sure you put a timeframe on each goal and work out how much money you need to make it a reality. Decide the steps you’ll need to take to reach your goal. Is it cutting your spending so you can pull together your house deposit quicker? Is it paying off your credit card debts so you’re not pouring money away on nothing but interest?
Whatever your plans – whether they’re for next year or way off in the future – you’ll have more options with savings behind you.
First things first. Work out where you’re having to spend the most money and try and cut back there.
Pay off debts with the highest interest rates. You may have to cut your spending to do this so look at where you can save some cash. Think about avoiding the shops until the sales or buying second hand.
Even if you don’t have debts, trimming what you spend is a good idea because it means you can get into the saving habit quicker.
Make saving painless by making sure you do it before paying out all your regular expenses, like rent or travel. Pay yourself first by setting up a savings account and putting money in just after you get paid. It doesn’t matter if you can’t spare much – just $20 a week becomes $100 before you know it.
Remember to check regularly that your budget reflects what you’re actually doing with your money, not what you’d like to be doing. And are there any other areas where you can cut what you spend?
Soon you’ll be looking at all that lovely cash you’ve piled up from managing your spending better.
Put some of your savings in an emergency fund to cope with those things that life likes to throw at you.
Set up a special savings account that you can’t get into very easily, so you’re less tempted to raid your savings if money’s a bit tight one month.
Aim to save enough to cover your living costs for at least three months, which might happen if you lose your job or your car breaks down and needs expensive repairs.
Your budget should show you how much your monthly expenses come to. It should also show you your living costs, like rent and other bills, and where you can make savings, like your fun spending.
Once you’ve got your emergency fund sorted out, you’ll be in a strong position to build up your savings even more.
The younger you are when you start saving, the more it adds up to in the end. If you’re not so young, that’s ok – but make sure you start now.
Keep your goals in mind to help you stick to good financial habits. Look at the long term but don’t forget what might be just round the corner.
Make sure you’ve got enough to cover three months’ living costs. Once you have a buffer against emergencies, see if you can spare a few more dollars each month.
If you’re thinking about investing, make sure you understand the risks. Some investments are low risk and short term, while others are riskier but offer a chance of higher returns over the long term.
If you owe heaps of money, paying it back is the quickest way to get ahead. Take control by paying off the debts with the highest interest rates first.
Help your money work harder by starting to save.
Remember, this is just a guide to help you start thinking about your finances and is not financial advice. If you’d like to talk with an Authorised Financial Adviser who can look at your situation, we can put you in touch with someone in your area.