• Tip: Choose savings accounts that don't have access to ATMs to delay an impulse buy. (Flickr)Source: Flickr
If your savings strategy is to earn, spend, then save what's left over, more often than not there will be no money spare and you're doomed to fail. Make saving a habit with this simple strategy: pay yourself first.
Brendan Fitzpatrick

21 Jul 2016 - 9:21 AM  UPDATED 26 Jul 2016 - 2:10 PM

Where to start?

If you’re one of the 43 per cent of Australians who don’t already have a savings plan, the time to start saving is right now. Ideally, we’d all start saving money early in life – because savings habits started in early childhood continue throughout a lifetime.

Starting early also means you can exploit the power of compound interest – a small amount saved early and set aside with financial savvy in your 20s beats a lot more saved in your later years.

But it’s never too late to start.

One of the most common financial pitfalls for non-savers is living from pay cheque to pay cheque. You’re at the mercy of your employer, unprepared for emergency expenses like dental bills and making big purchases like cars or holidays can put you in expensive debt.

Saving money, on the other hand, gives you a buffer against emergencies ­– and puts you in charge of making your dreams come true.


1. Set savings goals

You’ll be motivated to save if you have a clear target of what you are saving for – like a holiday, a car or a home deposit. When you set a goal, include a target amount and a timeframe – and make a commitment, tell your friends and family what you’re aiming for.

But before you can set that goal, you need to get familiar with where your money goes right now.

Even if it’s only a small amount, the key is: just do it.

2. How much to save?

Collectively, Australian households save about 8.1 per cent of their incomes. Many researchers argue there are cultural influences on how much people save. Professor Asad Islam, an economist at Monash University, has found that migrant families had higher rates of savings than their Australian-born counterparts, for example, while international comparisons show distinct differences in savings rates between countries.

But everyone is different – and within every culture there are variations. You need a plan to suit your own circumstances – and you can do that by first tracking how much money you have coming in, against how much is going out. Identify the non-negotiable expenses: things like rent, utilities, your phone plan and car registration. For many people, what’s left is a black hole, where money disappears – but if you’re deducting savings first, your financial situation will soon change.

First, you have to make saving habitual and a priority. Even if it’s only a small amount, the key is: just do it.


3. Escaping the debt monster

You have to change your behaviour to prioritise saving – and that means getting out of debt.

If you’re really struggling, check in with a financial counsellor – they can help you construct a budget, assist you in restructuring debt to lower the interest you pay – and highlight extra ways to save by consolidating accounts to maximise interest you receive. Low-income earners may find targeted programs and services to help them save and get better at managing money.


4. Where to save?

Now you’re committed to saving, you need to get your bank accounts organised, structured and purpose-driven. Lessen the risk of losing track of accounts and incurring unnecessary fees and charges. These may seem small at the time – but the savings made, add up fast.

That bank account your parents set up for you in primary school probably won’t meet your needs now. Put your money in the right account that suits your goal. Choose safety and liquidity options rather than growth for short-term objectives. High-interest savings accounts are a good option.

For medium-term goals picking the right investments can be a challenge. Find a balance between protecting your savings and growing them to protect against inflation. Generally the longer you have to reach a financial goal, the more investment risk you can accept. Some investments promise great amounts of growth but with greater risk also comes greater volatility. However, if you have 15 years or more to achieve your goals, you should be able to ride out any market fluctuations.

Pay Yourself First – meaning your goals are just as important as all the bills and people lined up to take your money away from you. 

5. Automate to save

There’s a huge range of apps, products and services to help you save, so take advantage of these advances in financial technology (“fintech”) to track your progress and meet your goals.

The best savings plans are usually easy to opt-in but more difficult to opt-out.

Make use of auto-deposit features to pay regular instalments into a saving account – if the money comes out before you see it, you're less likely to spend it. That’s a financial education strategy called "Pay Yourself First" – meaning your goals are just as important as all the bills and people lined up to take your money away from you. 

Choose savings accounts that don't have access to ATMs to delay an impulse buy. The first month or two may be inconvenient but once you get into the savings habit, you’ll be surprised as to how simple, painless and hassle-free saving can be.

Dollars and sense
How to teach kids money smarts from as young as three
Avoid the parenting pitfall of being a money tree to your kids. Learn from an ancient Chinese legend teaching kids that wealth and prosperity are gained through hard work, and help kids develop good financial habits from early childhood using the Three Jars methods.

6. Review your progress

Take the time to regularly review your savings plan and your bank accounts. Investigate ways to reduce unnecessary spending and to look at ways to maximise the benefits of your accounts.

Once you’re in the savings swing, it’s easier to change your attitude to increased income. A windfall, tax refund or salary increase becomes an ideal time to boost savings – rather than an opportunity to splurge. 

If your savings strategy is to earn, spend and then save what is left over, more often than not there will be no money left over and you are doomed to fail.

Combine the lessons of pay yourself first, know your banking products and make use of financial technologies – and you’re on a winning savings strategy. No matter what stage of life you’re in, it all starts with having a plan.


Love the story? Follow the author here: Twitter @ultrafitz.

Image from Flickr


For your chance to win $10,000 to invest in your future thanks to RaboDirect and SBS Life, placed into a RaboDirect Personal High Interest Savings Account, enter here. Competition closes 11:00AM AEST on Monday 26th September 2016.