In our heart of hearts most of us know we could save more. But creating a good savings habit requires discipline. The way to find out if you're committed is to ask yourself quite simply: do I really want to save more?
If you do, here are some serious tips for saving and investing more:
- Think big. If you want to supercharge your savings then set big but achievable goals and write down how you plan to reach them.
- When choosing bank or savings accounts be aware of whether you're being paid interest on a daily or yearly rate. The compounding effect of interest calculated daily can be huge over time. Also consider PIE funds for their tax advantages.
- Don't get caught by fiscal drag when you get a pay rise. It's not a windfall. Rather it's an opportunity to save more. Best to increase your direct debit into a savings account the day the pay rise comes through.
- Never invest on an ad-hoc basis. Have a financial plan which you follow and review regularly.
- Wipe out interest. If you really must have personal loans or credit card debt then consider paying off the one that charges the highest interest first from lower interest savings, or by consolidating debt into your mortgage. But beware this can be expensive for profligate spenders who keep on racking up debt. If you're the sort of person that occasionally forgets to pay your credit card balance, then arrange for a direct debit to clear the total balance each month.
On the other hand, here are some quick ways to "screw up your savings":
- Don't be fooled by flash investments. Legendary investor Warren Buffett says all that matters is "a business you understand, favourable long-term economics, able and trustworthy management, and a sensible price tag".
- Get a better credit card – such as one that pays you annual vouchers for petrol or groceries. Also if you ever pay interest on your card, make sure you've got the lowest interest rate you can get.
- Refinance your mortgage on a lower rate if you can. It's easy to think: I'll do that tomorrow – and sooner or later the low interest rates will be a thing of the past. But beware of expensive break fees.
- Shop around for cheaper insurance. Have you ever noticed how your sum insured for many insurance policies increases each year and along with it the premium? It's a good idea to review your insurances every couple of years and see if you can save money by shopping around. You can really save money on life insurance. But beware that pre-existing conditions will not be covered under a new policy.
- Keep a spending diary and see where your money really goes. Not enough people do this. It's a real eye opener to write down every cent you spend for a couple of months and find out just where your money's going. Make sure that alcohol and eating out isn't included under a "food" or "groceries" heading.
Do you have any tips on how to save money?