As a kid, one of the first lessons we all learn about money is how to save – you know the drill – 20 cents in the piggy bank each week and pretty soon you’ve got yourself your first toy, bought with your very own money.
As we get older, the toys seem to get bigger, and so do the price tags.
We start to get impatient… Why save to buy something tomorrow, when someone else is more than happy to lend us the money today?
And so starts the love affair with that four letter word – DEBT. Don’t get me wrong – debt has its place, and can be a very powerful tool to build wealth and improve your lifestyle.
But learning how to save is a basic skill that everyone should learn and maintain throughout their life.
I believe there are basically two ways to save:
The hard way
By trying to establish a strict budget for yourself and reduce your spending, so that at the end of the month you have enough left over for the piggy bank.
The easy way – pay yourself first
By automatically directing 5-10% of your income into savings as soon as you are paid, you can merrily go about spending everything else and know that the hard work is already done.
By always paying yourself first, you won’t over-commit yourself to buying stuff that is beyond your means, and you’ll be far less reliant on credit when the big ticket items come up.
And where should these savings be directed?
As with everything, that depends on your circumstances – There are a myriad of savings accounts on the market – many of which will pay you bonus interest if you add to your account each month. But if you’re already in debt, paying extra off your loans may be the best form of savings. A good rule of thumb is to check the interest rate on your loans and direct your extra payments off the most expensive.
Another option is to automatically direct part of your savings into your superannuation – this can be extremely effective as the money is locked way until you meet a condition of release (nothing like a bit of forced discipline), and you may be eligible for tax benefits and other concessions.
Regardless of your financial position, a regular savings plan can give you peace of mind and a sense that you are in control of your finances – and when you spot that next toy – it’s a great feeling knowing you can pay for it with your very own money.
By Sam Wallis-Smith