Saving is easy, right? It is if you set rules and stick to them. It’s a simple as that. Too many Kiwis think it’s impossible to save. Yet the golden rules are simple and logical and 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. Choosing to save is no different to choosing to buy a car or a new TV, or choosing bought lunches over homemade ones.
Spend less than you earn. People often think they can’t save. More to the point, they can’t manage money. If you want to save, or pay off debt, you need to spend less than you earn. If you can’t, then find ways to earn more and keep your spending the same. Even beneficiaries can boost their income legally, if they choose to.
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.
Save at least 10% of your pre-tax income. The paltry 2% or 3% paid into a KiwiSaver isn’t enough, unless you want to live on baked beans and white bread in your retirement.
Don’t save if you are in debt. If you have any credit card, or other consumer debt, pay this first before building up savings. What’s the point of earning 4% or 5% on your savings less tax if you’re paying 19.95% interest on your outstanding credit card balance ?
Save money on everything. Try to spend less on everything you buy and save the savings . Make sure you’re not buying things simply because they’re cheap.
Free up extra money. Where could you free up extra money? 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 subsidies 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? Accountants often say they save more money on tax than they cost.
Don’t sit on your savings. Saving is good. Investing is better. Inflation is running at more than 5% currently. If you’re earning less than that on large chunks of savings, then you need to consider investing that money to keep pace with inflation or grow ahead of it. Your long-term wealth depends upon it.
10. 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?
Your say: what savings rules work for you?