In this article:
Get serious about saving by committing to these six steps. Repeat these steps regularly, and over time, watch your savings grow.
The job losses and economic uncertainty brought on by COVID-19 are unpleasant reminders of the fragility of financial security. One minute you’re leading a comfortable existence, not worrying too much about saving money, and the next minute you realise just how essential savings are.
When things go wrong, it’s your savings that will buy precious time to work out a plan B. The opportunity to invest and build your wealth beyond your day job earnings – that too comes down to savings.
So we know savings are a lifeline, but how to get them? If you’re used to spending all the money you earn, the idea of savings might seem out of reach. But commit to these six steps, and you might surprise yourself.
Step 1: Conduct a spending audit
Go through last month’s bank statement and identify every expense. If you don’t know what it is, find out, no matter how small the debit. Awareness of your money leaks can be a wake-up call for changing your habits. Whether it’s online subscriptions you don’t remember purchasing or a $50 monthly coffee bill, it’s money ripe for saving.
- Useful reading: Plug Your Money Leaks: Ideas That Really Work
- Useful reading: Plug Your Money Leaks – 5 Bonus Tips
The spending audit doesn’t require you to cut right back to a frugal lifestyle. You’ll have more chance of sticking with a savings habit by taking a relaxed approach and cutting out just the things you won’t miss.
Step 2: Book in an annual bill review
For every bill you pay, you want to know you’re getting the best deal from your service provider. The only way to know this for sure is to renegotiate every year, switching products and suppliers to chase the lowest price.
Schedule bill reviews as an annual event in your calendar. For every recurring expense, there’s a chance to save a bundle, whether it’s energy and utility bills, mobile phone, internet or health insurance.
Add large bills like food, car use and mortgage repayments to this review list. If you haven’t checked your home loan interest rate in a while, do it now. Contact a Yellow Brick Road mortgage broker to find out if you can get a better deal.
Step 3: Use automation and technology
Now you know you’re capable of saving, automate this process by paying yourself first. Set up a transfer to move a specific amount of money from each paycheck into your savings.
Keep a continual track of money coming in and going out of your accounts. If budgeting isn’t for you, your next best option is expense tracking. Although this may sound like a tedious task, there are plenty of apps that make it a quick and easy process.
- Useful reading: How to Write a Budget You will Stick To
Step 4: Review your debts
It can be hard to know whether to prioritise savings or pay off debt. A simple rule of thumb is to compare the interest rate you’re paying on your debt with what you’d expect to make from investing the money or putting it in a savings account. If the interest rate on your debt is higher, then you should pay off the debt first.
- Useful article: Bad Credit and How to Clear It
Step 5: Build an emergency savings fund
Building a rainy day fund can happen in conjunction with paying off your high-interest debt. The fund should consist of at least three months of living expenses or six months plus if you have dependents. Keep in mind that your fund should cover all the necessary expenses like groceries, rent, mortgage, power bills, transport and healthcare. If you’re a property investor, factor in the extra cost of mortgage repayments to cover several months of vacancy.
Incorporate emergency savings into your budget planning. Open a separate high-interest savings account and set up a direct debit transfer from your paycheck account. Accept that it will take time to build these savings, but even the smallest contribution will add up.
Step 6: Find an additional revenue stream
Controlling your spending is only ever half the equation of building your savings. The other half is figuring out how to boost your income. Think about ways to find a market for your skills and talents, whether tutoring, catering, reviewing products or selling your artwork.
Repeat these five steps regularly, and over time, watch your savings grow. Turn these savings into investments and let capital growth and rental yield do the work building your wealth.
- Useful reading: How To Calculate the Value of An Investment Property