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The 10 Golden Rules of Saving

Tags financial-planning managing-debt
Category budgeting managing-your-money personal-finance

savings

Saving is easy, right? It is if you set rules and stick to them.

Too many Kiwis think it's impossible to save. Yet there are tried and tested golden rules that can be applied to anyone's circumstances.

Try these golden rules:

​Choose to save. Saving like anything in life is a choice and virtually anyone can choose to do it. I have even seen beneficiaries who save a little every week to cover unexpected expenses. Choosing to save is no different to choosing to buy a car or a new TV. 

Spend less than you earn. People often think they can't save. More to the point, they aren't managing their money effectively. If you want to save, or pay off debt, you need to set rules and stick to them. Start by asking yourself if you're being 100% honest about everything you spend. Very few Kiwis really truly differentiate needs from wants.

Save at the start of the month. This is so simple. Decide how much you're going to save and have it transferred to a savings account automatically the day you're paid. That way you don't see the money. Then follow the other golden rules here and add to your savings at the end of the month with any extra left over money.

Save at least 10% of your pre-tax income. The paltry 3% paid into a KiwiSaver isn't really enough, even with your employer contribution. If you want more than the basics of baked beans and white bread in your retirement, consider putting away a few per cent more each and every month, or paying your mortgage down faster.

Don't save if you have consumer debt. If you have any credit card, or other consumer debt, pay this down first before building up savings. What's the point of earning less on your savings than you're paying in credit card or personal loan interest? Paying down your mortgage can also be a better 'investment' than a term deposit. The exception to the pay-down-debt-first-rule is money paid into KiwiSaver that is matched by the government, your employer or both. It's hard to beat that instant return.

Save money on everything. Try to spend less on everything you buy and bank the savings. Make sure you're not buying things simply because they're cheap or that you're confusing needs and wants.

Free up extra money. Where can you find extra money in your budget? Even buying one fewer bottles of wine a week or making lunch one or two days a week can add up very fast. We all fritter money somewhere. It's a matter of identifying the worst leaks and plugging the hole.

Minimise taxes. Are you getting your full KiwiSaver member tax credit from the government? Do you claim for work-related expenses such as professional memberships? Could you run a small business from home to claim tax losses? Are any rental properties and businesses you own correctly structured to minimise tax? Do you claim back your school fees and other charity donations? Do it now!

Don't sit on your savings. Saving is good. Investing is better. If you're sitting on large-ish chunks of savings, you need to consider investing that money somewhere such as funds or property so that it keeps pace with inflation or grows ahead of it. Your long-term wealth depends upon it.

Review your savings once a year. Are you saving enough? Is the money earning the best return it could? Which of the points above do you need to work on? An annual review of your finances really pays off.

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