Do you know where your money is going every month?
If the answer is no, you’re not alone.
Data from the Australian Securities and Investments Commission shows 43% of Australians do not have a clear savings plan.
This is not a surprise considering that many people live pay cheque to pay cheque and only save what’s left after spending.
However, after you pay for costs such as rent, groceries, bills and the odd outing here and there, you may find you don’t have anything left to add to your savings.
Without an adequate savings plan, you may find yourself in a difficult position should an unexpected expense crop up.
According to Mortgage Choice’s Evolving Great Australian Dream whitepaper, 35% of Australians said they did not feel they had enough emergency money put away for a ‘rainy day’.
If you’re looking to build your savings and be in greater control of your finances, an effective strategy is to pay yourself first when you receive your salary.
Now this tactic is not the same as spending money on yourself. Rather, you’re strategically setting aside a portion of your income on pay day.
Here are six tips to help you start paying yourself first.
Set a goal
It’s always easier to save when you have a larger goal in mind, whether that be to save for a holiday, a car, a house, or retirement.
Look at your spending habits
Look at your fixed expenses for each month, including your rent/mortgage, utilities, transport and subscription services, as well as variable expenses such as entertainment and food. Deduct this from your monthly income and this will give you an indication of you how much you could potentially save each pay cycle.
Set an amount to save
Once you know how much you could potentially save each month, why not try and put that exact amount into a savings account on pay day. If, even after you have saved a certain portion of your regular income, find it relatively easy to live off the remainder of your income, you should try and step up your savings so that you are putting more money aside each month.
Set up automatic transfers
Once you’ve worked out “the sweet spot’ for your savings – ie: the exact amount you’re comfortable saving each pay cycle, it’s worth setting up a separate account that can be used to store this money. Find an account with a high interest rate that you cannot easily access via a debit card. Then, set up an automatic transfer from your everyday account to this savings account on pay day. The benefit of channelling your savings into a designated account is that you will able to watch it grow each month, which can motivate you to reduce your spending and increase your savings even further.
Adjust how much you save and spend
Every month, you should review your finances. If you want to increase how much you’re putting away, look at areas where you can reduce your expenses, such as cancelling unused memberships, switching mobile providers, or finding another home loan product with a lower interest rate.
Speak to a financial adviser
If you want additional assistance with your expenses and savings goals, speak to a financial adviser. They can create a tailored budget and a savings plan that can help you meet your current and future financial goals.