For those of you who know me, I spend a lot of my time here at Savings Guide talking about how to save money. This was born out of my own deep need to save money during times when I was completely broke.
I still quite often find myself in these situations, which is something I really shouldn’t admit to as the owner of this blog – though to struggle with money is completely human I have grown to realise. It’s our daily struggles with money (or lack thereof) that teach us our most valuable lessons. It’s these lessons alone that I can now thank for why I don’t have a credit card, I have a home loan that I make extra repayments to and why I have an investment portfolio that is slowly but surely ticking away for my future.
My three pronged approach to money is now; avoiding bad debt, owning my own home, investing for the future. This is the basic approach that is serving me well. Sometimes you need to have very simple goals in order to achieve them.
To further enhance these three elements of my finances; I look to save money. The more money I can save, the quicker I can pay down bad debts (or avoid them altogether), the sooner I can own my own home and the bigger I can make my investments (or savings).
It’s about going above and beyond with your money
So while the bank dictates how much money I need to repay per fortnight on my home loan, it’s the extra money that I save on the side and add to the loan myself that is truly making the difference. If I pay $200 extra per fortnight, that is $5,200 a year. This has a compounding effect to the timeframe of my home loan and of course; the interest that I pay.
An example to illustrate this point:
A home loan of $300,000 over 25 years at an interest rate of 6%. Paying an extra $200 per fortnight will result in a saving of $103,258.58 in interest over the life of the loan.
Time wise it will save you 8 years and 2 months. All because of a small extra payment on a regular basis.
I apply the same logic to my savings and investments. The more I can put away, the greater the effect of compound interest. There is something highly motivating about growing a savings account, logging in and watching it accumulate. Now days I do this on auto-pilot; I ask my employer to transfer money directly into my savings account to save time and ensure I never miss a deposit.
I focus on recurring savings
In my mind, there are two main ways to save money. Let me explain.
This means looking to save money on everyday items. For instance, do you really need that toast with your takeaway coffee? Could you perhaps drink water from the tap instead of buying a can of Diet Coke? These are the micro-purchases we make on a daily basis that have a cumulative effect on our savings over time.
While many saving money experts talk about reducing these micro-purchases (stop buying coffee, bring your own lunch, blah blah, *YAWN*) – I tend to prefer more strategic tips that make me smarter than the next person trying to save money.
Don’t get me wrong, you must conquer your micro-purchases to start to save extra money, though I will assume for now that you aren’t needing me to write 1500 words on why you shouldn’t pay for take away food every night (it’s simple; it’s bad for you and costs you more than cooking for yourself).
These are expenses we have on a weekly, fortnightly, monthly or yearly basis. Things like how much we pay for a mobile phone plan, the amount we pay for insurance, the gym membership that comes out each fortnight.
Recurring purchases are the quickest way to go broke. This is not to say that recurring purchases are not valid expenses; it’s just that if you fail to make smart decisions here – you are destined to lose money.
For example; each year my CTP greenslip provider sends me a renewal form – however I don’t simply accept the quote. I do a quick search online and look for the best deal. This has consistently saved me over $100 a year for five years and is what I would call the smallest saving I make per year.
I often make it a game to lower my ongoing expenses (recurring purchases). Can I lower my internet plan to save money? Can I alter my insurance (home, contents, car, health) to reduce my premiums?
Every time I reduce a recurring expense, I free up more cash flow to fund my three pronged approach to money. To me, this is a much smarter way to save money than simply avoiding the daily coffee (or as experts have coined it; The Latte Factor)
What is my underlying reason for saving money?
Simple. I woke up one morning and said to myself; “I want to spend less time doing things I don’t like. I want to spend more time doing things that I enjoy”.
Immediately my attention focused to my job at the time. I was working 9 to 5 (as Dolly Parton once said) to earn money, only to be spending it on things that weren’t really vital nor important. Add to this that many of my expenses were related to simply getting to work, eating at work or finding ways to make up for the fact I didn’t like work (on weekends) and I quickly realised that without a plan to save money and progress forward – life was all rather pointless.
‘Live to work’, not ‘work to live’ sort of thing.
Assuming that I didn’t want to work forever, I quickly found a new found respect for the money that I did have.
This founded my principle outlook to saving money;
“It’s not how much you earn, it’s how smart you are with what you have”.
The way I see it; each day I go to work, is one less day I have to earn money. If I am not smart with my money each day I will one day be in a position of not having any.
All rather deep for someone who just woke up isn’t it? Basic jist of the story was it was time to save some money.
Then and there I made some lifestyle choices
I chose to change my lifestyle to reduce my costs. I wanted to maintain a simpler budget; less stuff, more fun, more savings.
Here is what I immediately did:
I switched from a contract mobile plan to prepaid
No more $72 bills from Telstra. I switched to Amaysim as they were the only provider to have a true ‘pay for what you use’ model. This means that if I make one call per month and it costs me $0.43cents – that is all I am going to pay. No minimum spends, no minimum contracts.
I consolidated all of my debts into one
My wife and I had numerous debts and most of which were spread across multiple credit cards and personal loans. I consolidated all of these debts onto my mortgage for a lower rate and ease of repayment (sick of making payments to many different providers).
To counter the fact these debts are now extended over a longer payment term, I make higher regular repayments to factor in this new consolidated debt.
I cancelled all of my credit cards
After consolidating and paying off my credit cards, I opted to cancel them altogether.They are simply too convenient and get me into too much trouble.
I opted for a line of credit
Because I no longer had a credit card, I still needed a basic line of credit that would allow me advance myself money to even out cash flow (without charging cash advance fees commonly found on credit cards).
I opted for the St.George Get Set loan – a personal line of credit that allowed me to transfer money when and if I needed it. I was lucky enough to get a low interest rate & have my fees waived as I was a staff member at the time.
I promised myself to save 5% of my salary ongoing
I now save 5% of every dollar I earn directly into my high interest savings account. Most experts tell you to save 10%, though for me this doesn’t work. I need my cash flow and I find that 5% is a much safer figure to save.
Over time this has really added up and my end goal is to save one full year of my salary. I call this my ‘F-U’ account. I will let you figure out what it stands for.
I said ‘no’ to a heap of expenses
I opted to cancel my Foxtel, my mobile broadband, my excessive internet connections plans and more. I realised how caught up I was in fads; paying for subscriptions that I really didn’t need. I also cancelled my gym membership that I worked so hard to get at a good price. I figure if I am not motivated enough to go for a run in the real world; why should I pay $40 a fortnight to a gym?
I saved up and opened a term deposit
This is by far the best thing I ever did. I managed to save $2,000 over the course of 6 months. I then put the money into a term deposit which I constantly roll over to a new term deposit after the chosen period. It’s like a rolling investment that I keep as a motivator and back up.
It’s more to make me feel good about having some money ticking away than actually earning me a big amount of interest.
My next steps
As I grow as a saving money blogger, I am documenting all of the things that I learn along the way. I am sharing my personal journey and finding ways to ever increase my motivation to do better.
I encourage you to read about how to budget, stay motivated to save and especially how to declutter to save money. These are integral next steps for someone wanting to save money.
Good luck and start today savers. I hope this has been useful.