Eight Simple Steps to Reach Your 2020 Money Goals
I like to keep things pretty simple which probably explains why one of my favourite money tips is that it’s not what you earn that counts but what you spend. It sounds simple enough but the problem is plenty of us have absolutely no idea on exactly how much we do spend, or how to curb our spending habits and start a savings plan.
New data from Canstar, reveals more than half (57%) of Aussie adults don’t have a long term savings plan. Putting this into perspective that equates to over 11 million Australians aged 18 years and older.
The data also reveals that more than one in five (22%) Australian adults don’t save any of their after-tax income, so with that in mind here’s my personal eight-step checklist to help you set up a fail-proof strategy to save more and reach your money goals:
Step 1) Aim to save at least 10% of your take-home pay.
Feel free to save even more. The important thing here is that you do put money into your savings and that you pay yourself first. Set up regular automatic direct debits from your everyday account into your savings. Time the transfers to coincide with paydays to avoid overdrawing your transaction account. Always treat savings as a bill — it’s not to be missed!
Step 2) Define your goals — short, medium and long term.
As Benjamin Franklin once said: “If you fail to plan, you are planning to fail!” For me, short-term goals are just as important as long-term goals. Too often we talk about saving for retirement and as I’m getting older I’m certainly realising the importance of building wealth in the long term. But I need the motivation to get there, which is why my short-term goals are just as important.
Plan to have fun along the way otherwise you may never get there. Visualise your goals (short or long), put them down on paper and focus on doing what’s needed to get you there.
Step 3) Set up your savings buckets to achieve your goals.
Just like an organised home has a place for everything, so should every dollar you earn. You need to plan where you’re going to put every dollar and not just dump it in one draw. The bucket system is one way to help tidy up your finances. There’s no shortage of budget formulas to follow, and a popular option is the 70:20:10 plan. Another is the 60:40:40 budget plan.
Here’s how it works. You divide your money between:
• 70% for everyday living costs (rent or home loan, transport, clothing, food and utilities)
• 20% for saving
• 10% for splurging. Using buckets within buckets makes it easier to achieve multiple goals. You can allocate a set sum to each bucket, track your progress and fine-tune your budget for each target.
Step 4) Get some help if you need it — find apps or even a savings buddy to keep you accountable.
It’s a lot easier to go to the gym with a buddy so why not bring one along with you on your road to financial freedom. A buddy could help you curb your spending or just keep you accountable. Either way, you don’t have to divulge every financial secret to them — just the ones you need help with.
Step 5) Take part in fun challenges to kick-start your savings.
One of my favourite savings challenges is the Coke bottle challenge. It’s simple yet effective. The idea is that each time you get a $2 coin you pop it in a Coke (or any soft drink) bottle. A 600ml bottle will hold about $880 when full or you can use a smaller or larger bottle. Get the whole family in on this too — each of you can have your own bottle.
Step 6) Have a plan to help you reach your target but don’t feel as though it’s set in stone.
I know people who’ve never done a budget and are financially successful while others watch every cent yet because of their circumstances continue to live from pay to pay. If you’re going to do a budget you’ve got to be honest with yourself. If you like to go to the hairdresser every six weeks you’ve got to note that.
There’s no point making a budget that doesn’t reflect your life.
For me, a budget is a living-and-breathing document I revisit every six months. If you are going to follow a budget it’s really important you have an emergency fund attached to it, otherwise, you set yourself up for failure.
Step 7) Find the right place to stash your cash.
New survey data from Canstar reveals Aussies have an average of $21,852 in savings, yet 55% of the nation don’t know the interest rate on their savings account. With a 2.10% difference between the highest and lowest bonus savings interest rates on offer, for someone with the average savings, it could mean the difference of $39 in interest earned each month — or $464 over one year!
Step 8) It’s not the end of the world if you occasionally stray behind but make sure you learn from these experiences.
You will continue to make mistakes. Should I buy? When do I sell? There’s the fear of missing out. Often I am consumed by investor paralysis. The best advice I have received is just to do something. Doing nothing may be easier, but it gets you nowhere.
Effie Zahos — Guest Contributor
Canstar’s Editor-at-Large, Effie Zahos, has more than two decades of experience helping Aussies make the most of their money. Prior to joining Canstar, Effie was the editor of Money Magazine, having helped establish it in 1999. She is an author and one of Australia’s leading personal finance commentators, appearing regularly on TV and radio. Register here for her free 8-week Money Makeover, powered by Canstar.
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