A few weeks ago, some of our advisers visited the University of Queensland to present ideas on how to reduce financial stress. They knew that it was going to tricky to talk to students about saving money.
Everyone in the audience is focused on passing their degree and getting the most fun out of life as possible. Saving money? Isn’t that the opposite of having fun?
A boring concept like budgeting is a difficult thing to sell. But it’s not impossible. Our presentation got the students thinking about little things they could be doing now that could make a big difference later on. And even if partying was the number one priority at uni (after lectures, exams and assignments), when they graduated and started climbing the career ladder, our tips could actually come in handy.
If you have a child or a grandchild who’s somewhere between school age and settling down with a family of their own, this article for saving money might be just the sort of thing you’d like to share with them.
Make a list
The most important step when you’re trying to save money is to make a list of all your expenses. Write down everything (and we mean everything) that you’re spending money on. That could be petrol, coffee, gym memberships, streaming subscriptions and a whole lot more.
There’s a good chance you’ll be surprised by how much small things, like yummy treats for your dog, are eating into your savings. Given that just about every purchase is a tap-and-go transaction, you could easily be overspending on things that feel like nothings.
Sort out the wants from the needs
Now that you’ve got a list of all your expenses, grab a highlighter pen and pick out all the things that are needs.
You need to pay the rent. You need to buy groceries. Do you need your cavoodle to be professionally groomed every four weeks? Maybe, but we’ll leave that up to you. These are difficult decisions to make. But they have to be made.
By the way, we’re not saying that all your wants have to be binned. Budgeting shouldn’t be about existing. It’s about controlling the wastage and making sure there’s also room in there for the things that you enjoy now and the things you’ll want to do in the future.
Think of your budget goal as a bucket
As you can see in the diagram, the money that flows into your bucket, flows back out again in four ways.
The percentages here are just an indication of what is often typical. They will vary for different people and different circumstances, but they’re a good place to start.
60% goes to your regular expenses, those unavoidable costs that have to be covered. This consists of daily costs like transport, weekly costs like groceries and a percentage of yearly bills like insurance.
10% goes to short term savings
10% goes to long term savings
20% goes to an emergency fund. It’s always good to have a buffer of cash that you can turn to if you get hit with an unexpected expense like fixing the car or replacing the washing machine.
The above are all based on examples only and it will be slightly different for everyone.
Set up separate bank accounts
Back in the days of cash, families would often divide the notes up and place them into different envelopes. This physical divvying up of cash meant that the money was sure to be there when it was needed as different expenses occurred.
Today of course we don’t get paid in cash. However we can replicate the envelope system by setting up different accounts. It’s a great way to push money into short and long term savings, ‘locking it away’ when saving money for those new boots, big holiday or house in the future.
Make impulses impossible
If all your money is sitting in one bank account, it’s easy to kid yourself that you’ve got plenty of money. It’s such a simple trap to fall into.
Can we go to Bali? Sure, why not? The bank account’s looking pretty healthy.
Set up automatic transfers each pay day so that short term and long term savings money gets siphoned off first. That way, the money in your day to day account is all that’s available to you.
Rediscover your WFH habits
During the Covid lockdowns we couldn’t go to the corner café to buy lunch. So we got into the habit of making our own.
Why not do that now? Imagine if you made a sandwich before you left home. You could be saving yourself $60 or more each week.
If $60 doesn’t sound like much, grab a mortgage calculator and do the math. An extra $60 a week could help you to pay off your home loan 5 years sooner!*
*Calculation based on: $500K loan, 30 years term, interest rate 6.24% with weekly principal and interest repayments of $770. Source: Repayments Calculator (commbank.com.au)
If you would like more information please call 1300 ELSTON or contact us.