Fire up your savings strategy

Australians are saving again. In the latest Reserve Bank figures, the average household is saving just under 10 per cent of disposable income, the same level of savings that households maintained in the early 1990s.

It doesn’t mean people are doing it easy but with interest rates low, it appears some people are using the opportunity to save towards their goals.

In a recent Yellow Brick Road survey of 800 people we found that the most common goal for Aussie savers is paying-down debt (29%), followed by buying a home or renovating (22%) and saving for retirement (18%) – not exactly frivolous goals.

But saving isn’t simple for everyone. If you’re having problems getting started, think about these tips:

• Goal: many savings plans go awry because the goal is too ill-defined, or unrealistic. Try a specific goal that has a stated amount, and is achievable.
• Timeline: now determine a timeline for your goals. Is it a one year, two year, 10 year or even 30 year goal? The timeline for saving for retirement if you’re 40 is different and requires a different strategy to a goal of travelling to Europe if you’re in your early twenties. Longer term goals would be better off in a growth product than a typical savings account (a good example of one of these is my Protected Equities fund).
• Start early: our research showed most people don’t start savings for goals such as retirement until they are at least 45. This is too late. I’d recommend people start thinking about retirement goals and considering options like salary sacrifice from 30. Saving in this manner provides large tax benefits and means you’re much more likely to reach your long term goals with the benefits of compound interest.
• Sacrifice: you can’t have a goal and not be willing to give something up. Successful savers eliminate or reduce items from their monthly overhead to boost their savings. Sometimes it means giving up an expensive gym membership, eating out regularly and trading the pricey supermarkets for the discount ones. You may need to give up regular manicures and pedicures or reconsider an expensive car lease.
• Buckets: try using separate accounts for different goals. The obvious example is a superannuation account specifically designed for retirement that can’t be touched until you’re a certain age. There is a similar technique that’s been used for saving for Christmas – the money tucked away in ‘Christmas Club’ accounts. You can create savings accounts for specific goals, whether it’s for a housing deposit or holiday.
• Alternative savings vehicles: as your savings grow, your money should be contributing to your goals by earning interest. And the more interest, the better for you. Use a savings account with the best interest rate (often at second-tier banks and other institutions) and be careful of initial high rates which then revert to a low rate after a period of time. Some of the best government-guaranteed rates for your money are term deposits, and managed funds also offer high yields with a similar risk profile.
• Follow the plan: all your goals and plans are of little use if you don’t follow through.

Saving comes down to three components: goal, strategy and discipline. If you can get these basics right, you can achieve your goals. 

Mark Bouris