For a couple of years now the Reserve Bank has been telling us that Australians are focusing on saving rather than spending, and it seems our approach is paying off. Recent research from ING DIRECT shows the nation’s households now have cash savings worth an average of $15,427 – up from around $5,155 two years ago.
While some in the economy, particularly from the building and retail sectors, are urging us to open up our wallets, I reckon it’s good news for most Australians because no other factor is as important in becoming financially secure as saving. It’s even more important than investing.
The trouble with saving is that it’s not as much fun as spending. And it calls for discipline and commitment, something that doesn’t come naturally to most of us.
I realise that saving is also a lot harder for some households than others. If you’re a single income family with young kids, chances are there’s not much fat to spare in the household budget. ING DIRECT’s study confirms this, finding that among households aged 35-49 – those most likely to be raising children, average savings are $8,060.
The thing is, having a buffer of cash savings doesn’t just provide a foundation for wealth. It can offer a financial lifeline when unexpected bills or expenses crop up. So let’s look at some simple but effective strategies to get started with saving.
First, it’s important to realise that I’m talking about putting money in the bank. Giving up the mid-week pizza is cost cutting – it only becomes saving when the money you would have spent is deposited in a savings account. So the first thing you need to become a successful saver, is to have one.
Next, set yourself a savings target. Make it achievable and measurable and remember, your savings target doesn’t have to be impressive. If you don’t have much extra cash to spare, aim to have say, $50 in your savings account by the end of May. If you can repeat that every month, after just one year you would have over $600; after three years you’ll have $2,000.
Now comes the easy part. When you come home from work or the shops go straight to the piggy bank or moneybox and put the loose change from your pocket or purse into it. When the moneybox is full, bank it into your savings account. Just don’t dip into it while it’s at home.
You may think I’m joking, but I’m not. This very basic savings technique can generate impressive figures over time.
If you saved just $2 each day from age 25 you would accumulate around $36,000 by age 50. If you saved $5 a day that figure would be around $91,000; $10 per day would be $180,000 (assumes 5% annual earnings).
This shows how powerful a long term strategy can be. The trick is to save regularly without dipping into the cash unless you absolutely have to – and there is no time like the present to get started.