My guide to saving money rapidly (that doesn't involve a budget)
The below tips are featured on our 4 part series (from episode 111) on the My Millennial Money podcast!
1. Automate your savings
By far, the biggest thing that stops people having a great savings muscle is the mirror. What we need to do is set up an automated savings plan that removes the human element. Set your banking up so that on the day of every pay cycle your savings amount is sent to a separate savings account so it removes you. It’s OK to have this with another bank (& app not on your phone or card in wallet!) so you’re not tempted to log in and move the money around. Set and forget.
2. Audit your automatic debits
There are some people living among us who live the good life. No, great life. They live in bliss and do not seem to have a problem in the world. You have these people as friends. They are the best. The problem is that sometimes, they miss out on the gift of attention to detail. If you do not know any of these people, it's probably you! When was the last time you looked at all the direct debits coming out of your account or credit card? With all the subscriptions we sign up for, donations, insurances – do you actually know what you pay for? I had a client who was paying $120 per month for credit card insurance via their credit card. They thought it was the interest repayment. Take stock, pay for only what you NEED or USE or ENJOY.
3. Set up a spending plan
Budget’s suck. Who wants to log how much they spend on day-to-day crap and then reconcile it to ensure you’re within your allocation? Not me! A spending plan that is automated is the way to go. The first step is to work out how much you need each week for entertainment, fuel, groceries, going out and anything else that is random. Set an automatic transfer from your account where your pay goes into another account. Only carry this card around with you. Make sure it’s with another bank and only have this new card’s bank app on your phone. That way, week-on-week you are limited on what you spend and do not need to use your brain when buying stuff! It’s your new weekly play money!
4. Get plastic surgery & get out of debt
It’s pretty simple, if you have paid one cent of interest on your credit card over the last 2 months and you still use your card – it’s time to go. Plastic surgery. Scalpel please! The fact is you are spending more than what you earn. We need to stop the leak. Also, your debt has to be paid off eventually. Do this, if possible, before you save for a deposit. The reason why is that for every $10,000 of personal loan or credit card debt – your borrowing capacity may be impacted by up to $40,000! Crazy!
5. Limit how much you spend on rent
Perhaps you are ready to move places or it’s your first time out of home – the best way to decrease your rent is to split the costs with other people. Yes, this is obvious, but a good rule regardless is to not spend more than 30% of your net take home income (after tax) on rent. 25% is ideal. By reducing your rent, you can throw more money into your savings account or your debt reduction strategy. If you are in a relationship, it's the combined take-home income!
Want to know how much you should be spending on rent? Check out the blog post here.
6. Savings buddy
Why not have a savings buddy and keep each other accountable? One possible way to do this is to set up a different savings account, with a separate bank. Tell your savings buddy (or “accountability buddy”) to have half of the password and you the other half. That means, you need to go to them when you need to transfer money out. If the purpose for a house deposit, you will need them to be with you to log-in. Can they challenge you to not withdraw money for a French poodle?
7. Ask for a pay rise
This may seem way too obvious, but if you are working for an employer that is not like a government department and you feel there may be some discretion with salaries… why not ask the question? Be honest with them. Say you’re working really hard to save for your first home, you love your work and you’d rather stay a part of the team as opposed to trying to increase your income in another place. Remember that it’s not a shakedown nor should you hold your employer ransom, but if you have not had a pay increase for some time or you feel the market for your role has moved – why not ask? Probably will not work if you’re always late and leave at 4:59pm every day.
8. Get extra income
This is not illegal and it is possible. You’re maybe just lazy… It’s not forever, it’s for a time. No one has a pass on maths. More money into your life that you do not spend on penny whistles and moon pies (Simpsons’ quote!) the faster you will save. This coupled with a spending plan, savings buddy and cutting up your credit card could really turbo charge your savings. The good thing here is that while you’re working and earning money – you’re not spending. It’s a win-win.
9. Clean out your stuff #minimalism
This one is easy. If you have stuff of major or minor value that is not a family heirloom and you have not used it in 2 years… GUMTREE! It’s gone. Get rid of it. It’s just stuff. Once you’re into your new home, you can always buy more stuff. It’s amazing how much value some of us have laying around that can be sold with the cash put to savings. What have you got that needs to go?
10. Press pause on other big competing goals
The house, the holiday, the wedding, the new car, the French bulldog. All of our big wants and dreams usually take some time to save and mathematically speaking, saving a small bit each pay for each dream at once will fell like you’re treading water. It’s OK to want to save $20k for a wedding or international trip before you settle down and start your hard-core home savings. Don’t feel you have to do all at once because your broke friend told you so (because they did and are still paying stuff off!) The thing here is while you’re in the establishment stage of life, try one thing at a time and go for it! However, if you wish to get your house sorted first, you could then rent it out while you’re away on the holiday and said people can look after the Frenchie!
11. Downgrade your car
…if, the car (or cars if a couple) is worth more than 50% of your take home income (after tax) – you have too much car for your income. It will be acting like an anchor on your finances. Particularly, if you are over this limit and it will not be paid off within 2 years. If your take home income was $60,000 per year after tax – ensure your car is not worth more than $30,000. This is the limit. You are allowed to buy a second-hand car worth $10,000. Weird, right.
12. Stop gambling
Here is an expert tip. The odds are not in your favour. Ever. The amount of people gambling now is crazy. It must be such a growing number due to the mass advertisement that has crept in with the use of smartphone apps. I heard an add on the radio the other day for a poker machine app or something similar. These companies wouldn’t advertise if there was no return on investment. If you’re into the pokies – get your dopamine release from somewhere else or seek professional help. It’s OK.
13. Use your super to save for your first home and save tax
Did you know that there is a federal government incentive called the “First Home Super Saver Scheme”, which allows you to effectively save up to $30,000 in your super account at a reduced tax rate which could save you thousands of dollars? Before doing this one, you would benefit from financial advice as there are some tips and tricks that you really need to be aware of. If you’re about to get serious – check this scheme out. It’s free money. It will also make it harder for you to cave in and buy a new “something” with your first home savings. It also allows for your savings to be automated. Talk to a financial adviser about this as there are opportunities to move money into super for this so it’s through your employer as a salary sacrifice.