So what is the most commonly asked email we get from our readers?

I have $5000 left over from saving – what should I do with it?

OK so imagine this. You are saving for a holiday. You setup a budget spreadsheet to save perhaps $10,000 over 12 months for your big trip. Come time to book the trip, you realize the trip is only going to cost you $5,000 due to some travel specials you found online. You now have $5000 left over, what should you do with your left over savings?

You have multiple options for your left over money, which should you choose?

There are so many things you could do with $5000. The silly people will go out shopping and splurge on themselves. The smarter people will look for ways to grow that money, enhance their financial position and make that money work much harder for them than a pair of shoes or a new t-shirt ever could!

So what are your options?

Paying down credit card debt

Credit card debt can be the little devil that eats away at your lifestyle. It gives you instant gratification over a purchase followed by months of repayments.

Credit card debt has actually eclipsed mortgages in Australia with Australians owing more on credit cards than they do on mortgages. Now that is big money!

Why not be proactive and use the $5000 saving to pay off your credit card debt. An average card will charge you anywhere over 10% interest and sometimes as high as 20% – so really this is a must do. Your credit card is costing you money in interest so pay it off right away and you will save yourself some money!

Investing the money in assets to get a return

Why not try and turn your $5000 into $10,000? Have a chat to your local bank/financial planner and see if they can help you start an investment program in shares or managed funds to help grow your money. If you do not need the $5000 for 10 years, you can forget about it and invest in something with low risk and long term interest.

Make a lump sum payment to your mortgage

This will blow you away! Want to know how your $5000 can save you $14,922.31?

Make a lump sum payment on your mortgage. This means an extra payment above and beyond what you must pay per month or fortnight.

Consider this: You have a $500,000 home loan at a 7% interest rate. Your loan is for 25 years and you are 5 years into your mortgage. If you deposit a lump sum payment of $5000 on your loan, you will save yourself $14,922.31 in interest and 6 months worth of repayments – how amazing is that?

All of a sudden your $5000 has turned into $14,922.31 – not a bad return!

Start an emergency fund

We always stress the need for an emergency fund. Put this money aside and try not to touch it. Place it in a high interest savings account and forget it was ever there. One day in the future you will need to call on the money and you will have the original sum + whatever interest you have earned.

Start an account for your kids education

I will forever love my parents for this. When I was born they started putting away tiny bits of money for my future education. This means that by the time I was ready for high school, they were able to enroll me in an amazing school that helped me greatly. I will forever be thank full for their little bit of prior planning. Love you mum and dad! This is easily the best thing you can do for your kids future and $5000 can go a long way!

For instance, should you out of nowhere run into an extra $1000, you may decide to put that towards your mortgage to help you get ahead on your repayments and try and minimize your debt.

But how do lump sum payments really help you?

Well the answer to this is twofold. Making a lump sum payment towards your home loan means you reduce the amount you owe and in turn reduce the amount of time it will take you to pay it off. These two facets help you by reducing the amount of interest payable on your home loan.

Remember, interest is your enemy and what you should aim to reduce/avoid!

So, tell me how I can save big money by making lump sum payments!

Well using the logic above, it means that with every lump sum repayment you make, you not only reduce the time of your loan but you also reduce the amount to pay back and in turn the interest you will have to pay.

Interest on home loans tend to be calculated daily, so every dollar that is not on your loan each day makes a different to how much interest you will be charged.

An example of saving money by making a lump sum repayment

If I have a home loan of $500,000 at an interest rate of 7% for 25 years. You are 5 years into the loan and you decide to make a lump sum repayment of $10,000 you received from your Great Great Aunt who you never knew you had.

Using the $10,000 as your lump sum payment and adding it to your mortgage will provide the following benefit;

• You will reduce your mortgage length by 11 months
• You will save $29,212.06 in interest.

Why lump sum repayments are very very clever

They are clever because a small investment now makes a huge dent to the overall scheme of your mortgage. Even if you add $100 instead of $10,000 to the above scenario you will reduce the interest you pay by $300 – not bad!

Ideas on sourcing lump sum repayments

So now that you understand lump sum repayments for your mortgage, I bet you want to source some extra money to use!

Here are a few ideas for finding extra money to add to your lump sum payment:

• Find some night/part time work
• Use your tax return
• Cutting back on your everyday living expenses
• Creating a budget spreadsheet to find ways to stop spending

As you know, Virgin Money is the financial services arm of Sir Richard Branson’s Virgin Group. Virgin Money have been in Australia now since 2003 and offer a range of financial products.

We have to say that all of us here at Savings Guide are very excited to see Virgin back in the money game. The Virgin Saver is set to turn the online saver market on its head.

Virgin Saver – A very competitive savings account

As with all of Richard Branson’s business ventures, he doesn’t do things half hearted. This savings account is proving to be one of the most competitive in the market with a market leading interest rate.

View the rates of the Virgin Saver by clicking on Virgin Saver.

Why do we like the Virgin Saver account?

• It has high interest rates and they will stay high
• It has a great intro rate followed by a high ongoing variable rate
• There are no fees whatsoever
• No minimum saving balance or deposit, ever
• 24/7 access to your money
• Protection via the Australian Government Gaurantee for balances up to $1Million dollars.

Lose your saving money virginity once and for all

We often find that many people want to start a regular savings plan but never find the time or the energy to actually get it started.

We suggest you use the Virgin Saver offer as a chance to start from scratch. Even if you have an account with another online savings provider, why not switch and take advantage of the higher interest rates? It may even get your motivation start

Wish to apply for the Virgin Saver?

Apply here by clicking on Virgin Saver.

They are often not for people attached to the idea of hygiene.

Don’t shower everyday

Save on water, soap and the need to buy Valentines Day presents.

Reduce shampooing

Not such a bad one, Really, every day is a lot of hair care and you could save dimes (and time) by trimming that back to a couple of times a week.

No more toilet paper

Mmm, after you on that one.

Take a navy shower

A sentence asking to be made into a joke, but really in reference to the procedure of using water only to get wet and rinse. Save on water, soap but may still need to fork out for the Valentines Day present.

Sew your own clothes

It’s not that hard, and you can pretend to be old school. Spend the difference on a rocking chair and some baccy and you’re set.

Knit

It’s cold, and accessories all cost, so think about knitting your own gloves, scarves, beanies. It’s not hard to learn, and it’s much cheaper. You can also choose the perfect colour, which is always exciting.

Wash your clothes

In the shower. Take them in with you. Personally, I like to give my clothes a break from close contact with my body, but I’ve always been picky.

Make your own soap

See number five for the old school retro feel that you’re going for. Making your own soap will also help if you hate preservatives, or the ignorance of products that comes with a lot of consumers purchases.

Stop wearing make-up

You will end saving money, the cost of make-up is out of this world and you do wash it off at the end of every day (unless you’re me, where you wipe it off on the pillow every evening).

Stop shaving

No more razors, no more shaving cream, no water wastage, Go for the radical artistic look, and you might even get girls while saving money.

Cut your own hair

You’d save a lot of money, and who likes straight hair cuts anyway? That’s so 2006.

Use mayonnaise… on your face

Apparently it’s a great moisturizer. I’ll report on the truth of this next week.

Live on the run

Why the need for a permanent location for your home? Why not get mobile, and get a mobile home? It’s way cheaper and there’s no land tax.

Take in boarders

If you have a spare room, why not earn some extra cash by having boarders? Just vet them first, unless you really like Pink Floyd being played until 4 in the morning and having a dirty washing drying throughout your living room.

Live in your car

Not comfy, not sensible, but most definitely cheap.

Cut paper napkins in half

Clever, but probably not as cheap as just having linen napkins and washing them. Probably not as good for the environment either.

Live without heating or air-conditioning

Again, I might get someone else to roadtest that first before I willingly set myself up for hypothermia and heat exhaustion.

What extreme saving measures do you take?

It is hard to think about the future when it feels like you have a lot of pressing concerns in the now. However, there are some bad habits that can be avoided which will help you retire with money in your pocket and time to spend it.

Credit cards

Boo, hiss. Okay, so it’s a pet hate. And what do credit cards have to do with saving for retirement? Well (and Ms Appleby will back me up on this), credit cards and saving don’t exactly go hand in hand. One year’s madness can result in a couple of years paying off the card, and not putting the money into savings.

Appleby also talks about the positive effect a good credit rating can have on your long-term savings. A good credit rating apparently involves paying your bills on time (which saves you money anyway), never exceeding your credit card limit, and having a debt to income ratio of 16% or less. While some commentators seem to feel that credit ratings have become increasingly less important, a good credit rating will still make getting a loan or a mortgage easier.

Appleby suggests that you can negotiate on interest rates, and save a lot of money over the years, all of which can go straight into a retirement savings account.

Consider the olds

Ah, this one cuts to the quick. When you’ve graduated, you have a couple of choices. You can continue to rent, you can look to buy (I’m told, I’ve never met a recent graduate in this position) or you can move back in with the folks. I went with the latter option. There were a couple of reasons, but mostly I never wanted to be as financially insecure as I was throughout university.

Moving back in with my parents has allowed me to save for a career investment and start thinking about having a savings account that will allow me to buy a house. It worked for me, but should you be someone who values their independence too highly…

To rent or to buy, that is the question

No recent graduate, in Australia at least, could really afford to buy a house straight up. Unless I’m hanging with the wrong crowd entirely. But once you’ve got yourself a full-time wage, earning more than 30 cents an hour at the local café, you start to question what you are working towards? Should you be paying someone else a couple of hundred dollars a week, as opposed to putting that money towards a mortgage?

Volunteer

Super contributions are a pain, but I plan to be putting a lot of purple rinses through my hair in my old age, and I’m going to need to fund it somehow. Increase your own super contributions, and you’ll never see the money anyway. Think about setting up your own high-interest retirement saving fund. Being young and immortal is great, but I suspect a mane of purple hair might be pretty sweet as well.

What retirement advice do you have for young people?

It’s not a hard leap to make- unemployment does terrible things to your self-esteem and sense of worth and some of us (me, me, me) deal with those feelings by allowing ourselves to become physically unhealthy as well as mentally down in the dumps. Forbes has an article this week about the links between unemployment and weight gain.

Meghan Casserly suggests three reasons why we tend to put on weight when we lose our jobs- bruised self-esteem, a more sedentary lifestyle and less money to spend on food and the gym.

Self-esteem isn’t that hard to understand. A large part of our identity is caught up in what we do, and doing it well, so losing a job does tend to give your idea of self-worth a bit of a battering. On top of that, you don’t really have anywhere to go during the day. You can spend 10 hours a day job hunting on the laptop, but if you’re anything like me, that ten hours will be broken up every fifteen minutes to at Tina Wafers and to slowly try and preserve myself through caffeine.

With the sudden loss of income, you’re also unlikely to shelve out for organic, healthy food and are instead more likely to buy Maccas because, after all, it’s as cheap as chips. Cheaper food will generally have higher calories and less nutrients, and will probably be high GI meaning you crash and burn within about 60 nanoseconds of consumption.

So what are some tricks to stay healthy and trim throughout this period of enforced downtime?

Don’t eat crap

This is as important for your mental wellbeing as it is for your waistline. Two independent studies have now proven that people who eat a Mediterranean diet have 30% less depression than people who eat other foods. You are what your eat, and if you are eating good, nutritious food, you’ll be happier.

Don’t eat all the time

Stick to meal times. Just because you’re unemployed doesn’t mean your life is an empty vacuum. There is lots to do, so fill your day with tasks and eat your meals at regular times.

Don’t ditch the gym right away

Cost-cutting often means the gym membership is instantaneously out the door, but before you call to cancel, try and think of another place you could possibly save money. The gym has lots of attributes that is a perfect antidote to an unemployment slump- it gets you out of the house, gets you socializing and keeps you feeling happy through exercise endorphins.

Use the time

Being unemployed is horrible- there’s no way around it. You’re not going to enjoy sunning yourself, or catching up on the entire works of Tolstoy. It’s a stressful period. But, with a bit of structure, you do have more time to cook healthy meals and exercise. Just devoting a couple of hours to it a day will have you looking healthy and feeling happy.

Have you ever been unemployed? How did you stay healthy and happy?

A lot of money concerns are deeply troubling because we don’t address them early enough. We don’t talk about our finances, we ignore our bank statements and we try and pretend that everything will turn out alright if only we keep our heads down and don’t think about the trouble we’re in.

In reality, we’re only making ourselves more anxious. You know when you’re upset with someone and you stew and stew, only to confront the person in question about it and feel much better instantaneously? It’s the same with finances- unhappiness comes from inaction and feeling helpless. The more proactive you can be about fixing the problem, the happier you will feel.

So if any of these signs apply to you, get proactive and start improving your financial situation now.

Sign Number One: Emergencies would make you panic

We all know we should have an emergency fund, worth anywhere between 3- 12 months of expenses. We know it, and then we ignore it, and when an emergency happens we plunge into a debt that can leave you and your family financially shackle for a long time. If you don’t have one, that’s a pretty good indicator that your finances aren’t as well as they could be. Start saving and setting aside money for a rainy day. Rainy days are more common than we like to believe.

Sign Number Two: Month to month is a frightening prospect

Emergency funds aren’t just to protect you should your car break down and never return to the land of the living. They’re also there to pad you out should anything happen to your income. If you’re living so close to the wire that any disruption to income would mean it was hard for you to meet your monthly obligations, you need to have a good look at your spending and work out how you can fatten out your savings.

The last couple of years have proven that there is no job secure enough to be entirely relied upon financially. If you get less shifts for the next four weeks, could you pay your rent? If the answer is no, start saving now.

Sign Number Three: Minimum monthly repayments

If you’ve got a large amount of debt and you can only afford the minimum monthly repayments, you need to start tracking your spending and cutting down on expenditure. Firstly, you’re never going to get out of debt that way. Secondly, should the unexpected happen, you’re going to end up defaulting on a debt and being in serious Money Trouble Land.

It’s difficult to build up your emergency fund and your savings at the same time, but with a comprehensive household budget and a reevaluation of your spending habits, he extra money might appear without too much heartbreak. Once those steps are taken, it shouldn’t be too hard to get yourself out of trouble before you find yourself neck-deep in it.

What do you think are signs that your finances are not as healthy as they should be?

This week, it’s that there is such a thing as retirement boot camp. They make look nice and sweet but two women in America have been running a retirement preparation course that pulls no bunches. After all, it’s one hell of a lifestyale change. 40 years of your life has been invested in going to work 5 days a week. Suddenly, you have nowhere you need to be. Your savings are dwindling, and no money comes in. The time you’ve always wanted to spend with your partner is now yours and you realise you have to get to know them all over again.

Boot camp lasts a year, and is intended to prepare you. Usually 80% of participants decide to work a bit longer, either because they realise they’re not ready or it becomes a game to be more prepared than entirely necessary. Tara Siegel Bernard got some fantastic tips out of them as to how best prepare for retirement.

Spending

Know what your lifestyle costs. Include every expense for the past year. Once you know that, you’ll know how long you could afford that lifestyle if you have no income and only savings to rely upon. While frugality is an important part of retirement, the first couple of years might involve some additional expenses when you finally have time to travel or put some work into the house.

Net worth statement

Assets and liabilities. Should your vacation home be kept, sold, or rented? Is your mortgage paid off? If it isn’t, the advice is that generally you shouldn’t retire until your free of that rather large, imposing debt.

Insure Thyself

Retirement is a big life change, so what affect will that have on your insurance? Bernard asks whether you need life insurance anymore, if there’s no income to protect? If you’re living without a mortgage, dependents or loans to pay off, she suggests to look again at your policy and have a think about how necessary it is.

Goal Setting

What will your retired life look like? Will you volunteer, travel the world, work part-time at the school canteen? Understand what you would like your retired life to look like, and it will be easier to know how much money you will need to get there and maintain it.

Increase your savings

Firstly, you’ll need as much in your savings account as you can get. Secondly, if you can’t afford to increase your savings, maybe you need to reconsider retiring straight away as there obviously still major drains on your income.

Tax Planning

Know what parts of your retirement income is taxable, and set aside the money. Don’t get stung at the end of the financial year because you’ve never had to save the tax before. There’s no PAYG in retirement.

Charity

Think about donating time, not money, in your retirement. It’s just as precious a resource.

Estate Planning

Review your will. If your children are grown now, you probably don’t need to include who will take guardianship of them but you might want to have one of them as the executor of your will. It’s all the more important that the will is up to date, with such a major life change like retiring.

How are you preparing for retirement?

But that doesn’t mean I have lost all hope of raising children (eventually) that cost the earth. I’m not saying that Christmas will be a one day cessation of back-breaking child labour, but there are a couple of pointers I have found in my researchers (Nine MSN Money and … to be exact) that I thought I would share with y’all, whether you have children, are expecting or haven’t thought about it yet.

Food shopping is not a family exercise

I was a master at this one. The sad eyes, the trembling lip and the finger, outstretched, pointing at a chocolate bar or strawberry milk or whatever. It’s not that I really wanted it, and I would have existed quite happily without it, but now I had seen it, I needed it.

Avoid this situation at all costs, because those mid-supermarket screaming matches are unpleasant for every one involved. Grocery lists are your saviour, so go at a time when you can stick to it. This means you can audit the health level of the food entering your home as well.

No name brands

There is an odd trajectory- when your child is young, brand names mean nothing to them. Then they go through this horrible decade or two decades where brand names are all that matter, and then come out the other end distinctly uncaring once more.

I like Alison Tait’s suggestion of making them pay the difference. If you were happy to spend $30 on jeans, and they can’t live without a pair that costs $100, don’t front up the extra money. Let them save and cover the costs- that way you are not costing yourself a bucket, and you’re teaching them a good lesson in financial goals and denial at the same time.

Check out the freebies

My parents took my younger brothers and I to Europe when we were kids (you see now how easily I have cost a million dollars). Obviously we were expensive baggage, but not in an entertainment sense. People working at art galleries, train stations, the occasional petrol station (a long story) would trip over themselves to give us free tickets. Maybe it was the blue eyes and pathetic expressions, but it works in Australia too. There are tones of free things organised for kids throughout the year- capitalize on them.

Yes Yes Yes No

I can’t say no, it’s a gift I plan to acquire before having children. If you have children, saying no is important. Money is not infinite, and the sooner they grasp that thought, the happier their lifelong finances will be. In the Tait article, she mentions how children can sometimes think that cash is simply dispensed by an ATM, with no thought as to how you earn it.
I’m not suggesting I’ll be giving personal finance advice to my toddler in between Sesame Street and Play School. But an awareness of the value of money, and the work ethic required to earn it, would be two lessons I would hope to teach my kids quick smart.

How have you saved money while raising your kids?

You might think it’s mumbo jumbo or you might rule your life by the stars, either way it makes for an interesting tangent. For instance, did you know that Scorpios are most likely to divorce over money matters? Or that if you are a Cancer, you are most likely to be lying about the state of your finances (or maybe you’re the most honest and admit to lying, while every other star sign fibs about fibbing). Sagittarians fight over money all the time (39%), but rarely separate over it (2%).

If you are at your wits end, then here’s a guide to help you out.

Aquarius: You volatile thing, you. Obviously you equate consistency with being deeply boring, how else to explain your money situation which will be plum one day and in the red the next? You’re also a bit down on yourself, with only one in three believing you have a good credit rating. Why not hunker down, budget a bit and think positive thoughts?

Pisces: Don’t date them if you want a long, happy marriage without any arguments about money. One in twenty breaks up with their partner over money, and can’t seem to make money a priority.

Aries: Carefree folk, the Arians live for the day and don’t plan much when it comes to money. That’s fine when you’re young but it’ll bite hard once you get to retirement. Try a little of rainy day thinking.

Taurus: Confident and a tad lazy about finding new deals, Taurus generally feel pretty good about their finances. If this is your star sign, think about reevaluting your financial decisions, and making sure you’ve got the best deals floating about.

Gemini: The general two-sided phenomenon that is a Gemini manifests itself in a chopping and changing approach to finances. I can’t imagine that it’s a helpful trait when it comes to investing, but it would help in making sure you’ve got the best deals on bank accounts.

Cancer: They do fib on occasion, but are otherwise quite consistent with money. Cancerians are noted for the random splurge now and then. Try and keep the lies to a minimum and you should be sweet.

Leo: Typical of their general approach, Leos god intentions can often end up in large debts and a small amount of general chaos. Keeping it reigned in is the ticket if you are a Lion.

Virgo: Confident about their money, and meticulous about keeping records of where it all goes, Virgos are good with money. They may not be the person always shouting rounds, but they will retire secure.
Libra: Librans trust too much, and jump into attractive offers without much thought. Research a bit more and you’ll lead a happier life.

Scorpio: These guys potentially research too much, hence the high divorce rate. Harness the indefatigable research and get yourself a good deal. Try and be nice to your partner.

Sagittarius: Absent-mindedness is your biggest sin. Set yourself reminders so to not let the bills pile up.

Capricorn: Calm and organised, that’s how you roll. You rarely break up over money and rarely argue over it either. Congratulations, you’ve got it sorted.

Does your star sign affect your finances?