Making the most of your savings
According to a recent report in The Sydney Morning Herald, banks are struggling to secure short-term funding. What does this mean for you?
This means that the big four are competing more aggressively now on short-term deposits as they need the cash. According to recent RBA minutes, our deposits constitute increasingly more of the funding Banks receive, up from 30% to 50% over the last five years.
So even though the RBA recently announced a rate cut (on 1 May 2012) this does not mean that deposit rates will be reduced. In fact, due to this competitive environment deposit rates should remain generous for the time being.
This means that now is a great time for you to look for the ideal savings account which will help you make the most of your money from an interest rate perspective.
However it’s important to note that this competition applies mostly to short-term deposits rather than longer-term ones due to the shortfall in short-term funding. In other words, you are more likely to get a better rate on an online savings account rather than a term deposit with a longer lock-in timeframe.
So the question becomes how can you make the most of your savings?
To make the most of your savings you need to firstly get your finances in order and then shop around for the right savings account for you.
It takes a bit of time and effort to get your finances in order if you have not already done so. However once the initial set up is done, managing your finances on an ongoing basis will become easier.
First step is to allocate a block of time to the task. Set a few hours aside on the weekend to take a thorough look at your finances. Get all your utility, insurance, grocery and other bills as well as your credit card and account statements out in front of you.
This will enable you to see exactly where you stand financially in terms of your income vs expenses, helping to see whether you are living within or beyond your means.
If you are living beyond your means and are relying on ongoing credit card debt or other loans to make ends meet, then you need to make a plan to pay your debt off first before you start to save.
However whether debt repayment or saving more is your first priority, you need to set a budget in order to get your finances under control.
When setting a budget you need to look at all your income and expenses and see where you can cut back on spending. But don’t make your budget too strict otherwise you’ll break it quite quickly then be left feeling overwhelmed and disparaged.
Some simple tips to save money include:
Bring the caffeine:: save a little each day by brewing some coffee at home or work instead of buying it
Don’t bag the brown: take your lunch to work or school rather than buying it all the time
Minimise the take-out: between pasta, simmer sauces, slow cookers etc it’s quite easy and quick to make meals at home (plus i’ts healthier too)
Ban the brand: buy generic or store brand items. Lots of these are equal in quality to their more highly priced competitors especially for staple items such as sugar, bread etc
Remember the library? visit your local library and take advantage of free books, movies, periodicals and more
Save your energy: simple steps like turning off appliances at the powerpoint, turning light s off when not in the room or minimising your loads of washing all contribute to a lower energy bill
Forget the gym: It doesn’t need to cost you a lot to be fit. If you have the space at home it’s fairly inexpensive to create a home gym, or you can simply hit the pavement and start walking or jogging
Cut the cable: do you really watch all the channels on your foxtel/cable tv package? Can you eliminate any so you can reduce this cost? If so, cut back and save on your monthly bill
Utilise customer rewards: does your credit card have a rewards program? If so, see what rewards you can use as gifts or to obtain household items that need replacing. An idea is to get gift vouchers if they’re available and use these to purchase xmas or birthday gifts
Show a little bit of love: taking care of your clothes, appliances and other household items will help you save money as it will extend their lifespan
Want more tips, advice and free budget tools to help you along? Simply visit the sites below:
- ASICs Money Smart website: here you can watch a tutorial on how to set a budget, create your own budget and access a wide range of financial calculators, hints and tips.
- Moneyhelp: here you can download and print free budget planners and access other valuable financial resources.
Once you have your finances under control, it’s time to start planning how much you want to save and where you want to save your money. To do this, you need to follow a few simple steps:
It’s a date
To ensure that you save regularly, it’s ideal to set up an automatic monthly payment into your savings account, this way you can’t forget or delay moving your money. The amount you choose to transfer will depend on your budget.
Get a financial umbrella
Before you start saving for a particular goal, you should have a reserve of money in case of emergencies. Ideally, you should have three months worth of income saved for a rainy day.
Take aim
When starting to save, it’s important to set a goal as it gives you something tangible to work towards. For example your goal can be a holiday, car, home deposit. If you don’t have a goal, you may lack direction as you are not working towards something in particular.
Start seeking
Don’t automatically go with your current bank. It pays to shop around to ensure that you get the highest rate possible, so you earn as much as possible on your money, helping it to grow quicker.
Once you have found a few savings accounts that offer a competitive return on your money, you also need to look at the features to ensure that the account suits your needs.
Some of the factors you need to look at include: how you want to conduct your transactions (eg phone or internet), the liquidity of the funds (how often you want to access them), fees and more.
Often if you’re willing to invest your funds into an online account you can earn more interest than via a traditional savings account. For example, UBank (backed by NAB) and RaboDirect offer online savings accounts with a bonus rate of 6.01 per cent .
An ideal way to shop around for the best savings account is by using financial comparison websites. Here you can view numerous accounts in the same place and compare the rates, fees and other features of each account, helping you to make a better informed decision.
For example, on creditworld’s savings accounts page, you can instantly view ten different accounts, their rates and ratings to help you find the right account for you.
As you can see, saving money is a straightforward process. All it takes is a few simple steps to set you on your way, so take advantage of the current environment and start making the most of your money today.
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