“I’m bad at saving money”. “Saving money is too hard”. “I don’t know how to save”. Sound familiar?
Disciplining yourself to save is hard. But that doesn’t mean you should just throw it all to the wind and carelessly kiss it goodbye. Especially because you KNOW it’s something you should be doing. And that if you don’t, it will definitely catch up with you later – probably when you’re three kids deep, drowning in mortgage repayments and debt and crying yourself to sleep every night.
Wow. That got dark real fast.
But saving is a serious business. Findings from a study by the Financial Planning Association found that not saving enough money was the biggest life regret of Australians across all generations. Yep, the biggest.
So if you have a bad habit of, ahem, “accidentally” spending your savings before you mean to, here are a few simple tricks to start saving money.
1. Pay yourself first
You keep promising yourself that you’ll stash a little extra money away into your savings next pay cycle, but mysteriously it never happens. Sound familiar?
The problem is that by the time you’ve paid for everything else – rent, groceries, utilities, a few dinners out – there’s usually not enough left over to add to your savings until the next paycheck comes in. And so the vicious cycle continues. Rinse, repeat.
The trick is to treat yourself, or rather your savings account, as a bill that needs to be paid before any of your other bills can be paid. Every payday, set aside a portion of your income before you spend any discretionary money and transfer it over to your savings account. And once it’s in there, it stays there. No dipping into it!
2. Automate your savings
Ever heard the phrase ‘out of sight, out of mind’?
It works on household clutter, on that passive-aggressive post-it note from your housemate, on those bills you just don’t feel like paying…
That last one was a joke.
Employing the ‘out of sight, out of mind’ philosophy works on your finances too.
By automating your savings, you never see the money so you won’t be tempted to spend it on things you don’t need.
There are a few ways you can do this. You can ask your employer to automatically put a portion of your paycheck into your savings account. You can also set up a direct transfer from your transactions account once payday rolls around. Most bank accounts will let you do this.
By automating your savings, it’ll happen automatically so you can’t sabotage your own efforts by ‘forgetting’ to transfer the money. Or not wanting to transfer the money. Or rationalising that you’ll make up for it next month while knowing full well that’s never, ever going to happen.
3. Go for a high-interest savings account
Unlike an everyday transaction account, a high-interest online savings account is specifically designed to help you save your money – not spend it.
Switching to a high-interest savings account that pays more interest on your money is probably one of the easiest steps to take towards saving more money and making it work harder for you. If you’ve got money sitting in a low-interest everyday transaction account with banking and transaction fees, you could actually be losing money.
Generally, interest is compound interest that is calculated on your balance daily and paid monthly.
Keep in mind that lots of high-interest savings accounts offer bonus introductory rates for the first few months only, before dropping it down to the standard variable interest rate after this time, which is usually much lower.
To make sure you’re always getting the highest interest rate, you can keep on switching accounts after the introductory period ends – but you can generally only earn the bonus introductory interest on your first account with that bank.
Others can pay bonus interest provided you meet the specific conditions, which we’ll cover further down the page.
If you’ve looked into the rate you’re currently getting on your savings and aren’t happy Jan, check out our article on some of the highest savings account interest rates on the market this month.
4. Make your savings hard to touch
And by hard to touch, I don’t mean go and bury it in the backyard or put your credit card in the freezer, though that could work too.
In the 1970’s, economist Richard Thaler invited a bunch of mates around for dinner. During pre-dinner drinks, he noticed everyone was tucking into a bowl of cashews, simply because the nuts were there. Surprise, surprise – as soon as he took the bowl away they stopped eating them.
His lightbulb moment from this accidental experiment was that humans lack self-control. We know the pre-dinner cashews will ruin our appetite but we eat them anyway.
Most people lack self-control when it comes to their finances too. Research by UBank found that almost half of all savers admitted to regularly dipping into their savings account for other spending needs. So why not remove the temptation altogether by just making it harder to access your savings?
There are a couple of ways you can do this:
A high interest or bonus saver account
A high interest or bonus saver account offers you extra interest every month you save money. They’re called savings accounts because, as I’m sure you might have guessed, the entire point of them is to help you save and grow your money – not dip into it for incidental purchases here and there.
Savings accounts offer high interest rates, charge no or minimal fees, and normally come with a range of incentives to encourage you not to dip into your savings.
These are also called bonus saver accounts, which offer a higher rate of interest each month that you make limited or no withdrawals and when you make regular deposits – a great incentive to keep stashing your money away.
To activate that bonus interest rate each month, you need to satisfy a few requirements. These may include depositing a specific minimum into your account each month, making a minimum number of deposits each month, making no or limited withdrawals each month, and maintaining a minimum account balance.
As you can see, these requirements all have one goal in common – to make sure your savings stay put. Savings accounts also don’t typically come with a debit or EFTPOS card so the funds are less readily accessible.
The second option is to lock your savings away into a term deposit.
Unlike savings accounts, you can’t withdraw your money from a term deposit without incurring a penalty. Some even require you to give up to 31 days notice. Obviously, this makes it an ideal option if you can’t keep your paws off your savings and are notorious for dipping into it on the reg.
Plus, you get the added security of a fixed interest rate and a guaranteed return on your investment. If interest rates drop while your money is locked away, you won’t be affected, making it a low-risk option.
But once you’ve made the initial lump sum deposit when you open the term deposit, that’s it – you can’t keep on adding to your savings as you go. You can kind of get around this by having multiple term deposits with staggered maturity dates.
Putting all your money into a term deposit might be the better option of the two if you find that having easy access to your savings is too tempting and leads to overspending.
5. Bank that bonus
Received a nice little pay rise or a big fat tax refund? Awesome! Now chuck it straight into your savings account.
After all, it’s money you never really had in your pocket anyway. So by putting it straight into your savings, you can just pretend it never existed and keep calm and carry on with your usual budgeting and spending.
Your bank account gets an instant cash injection and you barely even broke a sweat.
6. Invest your spare change
Technically, this one is more about making money, but tomato tomato, potato potato. At the end of the day, if you’re ending up with more cash than you had before, it’s winner winner chicken dinner in my books.
Raiz, formerly known as Acorns, is micro-investing tool that automatically invests your spare change. Say you buy a $4.20 coffee. Raiz will automatically round your transactions to the nearest dollar amount, and invest your leftover 80 cents change into your investment portfolio of choice.
Raiz also has a neat Savings Goal feature. You can set a recurring investment in-line with your payday, as Raiz lets you customise investing daily, weekly or monthly. You can customise the goal name to keep you focused on whatever it is you’re saving up for, be it a six-month solo trip around Europe or that new season Lorna Jane you’ve been eyeing off.
7. Use an app to keep your spending in check
If you really struggle with saving money, put your phone to good use by using an app to keep track of your spending.
These days there are literally dozens of budgeting and spending tracker apps on the market which provide you with a categorical breakdown of your monthly spending so you can see exactly where and how to make cutbacks.
To read more about savings apps and find one that’s right for you, read our article on the best budgeting apps.
Savings.com.au’s two cents
If you’re a bad saver, disciplining yourself to save money can be hard. But you don’t have to go to extreme measures to live a more frugal life, like showering every third day to save on your water bill or collecting your dog’s hair and knitting it into a scarf.
Making a few simple tweaks like automating your savings, or just making your savings harder to access might change your approach to money (and your bank balance) significantly.