Learning how to save money is an essential skill, but not everyone knows how to save effectively.
You don’t have to wait until you’re earning a high income or own investment properties to begin building your wealth or working towards your financial goals.
It starts with developing smart money habits now.
With the end of financial year around the corner, it’s a great time to review your financial goals and put in place tactics that will help you achieve those goals, sooner rather than later.
Read on as we discuss our six top saving tips to consider.
1. Financial goals for a favourable future
The first step to reaching your financial goals is knowing what you’re saving for.
By determining clear financial goals, it’s easier to take charge of your finances.
They help you visualise what you’re working towards, put plans in place to help you reach those goals and identify (and address) any hurdles that may stand in the way.
Write down your goals. These could be anything you want to financially achieve in the short (1-2 years), medium (3-5 years) or long term (5-10 years).
You could be saving up for a car, a house deposit, or a relaxed retirement, building an emergency fund, leaving your 9-5 job to start your own business, or eliminating credit card or personal debt.
Once you’ve defined your goals, stick them somewhere you’ll see often to keep you motivated – like the fridge, your study noticeboard or readily accessible on your phone.
2. Analyse your current financial position
Once you’ve set your goals, it’s important to review your current financial situation to make sure they’re realistic and achievable.
For example, if you want to save $10,000 by this time next year, that means you will need to put away $193 in savings each week for one year (assuming you earn no interest on these savings).
Review your recent financial statements and identify the money your income versus your expenses.
Also identify how much of your spending is allocated to each category, such as essentials (i.e., rent, food, transport, etc.), clearing debt, and non-essentials (i.e., eating out, shopping, etc.).
The Australian Government’s Money Smart website has a range of resources for reviewing your expenses. With expenses broken down into eight detailed categories, their budgeting tool may give you a more holistic understanding of your financial position – by bringing light to expenses you don’t realise you have or that add up over time.
If your goal isn’t realistic given your current income and expenses, we recommend adjusting your goal or spending habits to suit.
3. Optimise your non-essential spending
Once you’re aware of your spending, a quick hack to saving money is by reducing, or simply optimising, your non-essential spending.
Small expenses, such as a daily coffee, ad hoc shopping trips and bought lunches add up quickly and can hinder your ability to save – so it’s important to reduce this where possible.
However, that doesn’t mean cutting back completely on the things you love.
Try bringing homemade lunches to work instead of buying out or cut back on the number of takeaway coffees you buy.
Regularly review your subscriptions (i.e., Spotify and Netflix), memberships (i.e., gym memberships) or even car insurance for a better deal. While you may not need to cancel them, you can save money by switching to a plan that better suits your usage.
Another easy way to save on your spending is by monitoring your fuel usage and planning which times you fill up throughout the petrol price cycle. There are many resources out there to help you determine the best time to fill up, or even lock in a certain fuel price.
Even if you manage to cut your spending by $10 per week, you could save an extra $520 each year.
4. Create a realistic budget (and stick to it)
After you’ve assessed your financial position and set realistic goals, it’s time to put it in a budget.
While budgeting may seem ‘boring’ or ‘daunting’, it is a critical step to achieving your financial goals. Your budget should provide a detailed roadmap, connecting you with your goals by breaking them down into smaller, more achievable steps – and keeping you accountable.
We recommend setting up your budget based around your pay cycle – this can be weekly, fortnightly, or even monthly – outlining how much of your income should be set aside for each category, including savings towards your goals.
It’s also a good idea to include a buffer or contingency for any unexpected expenses, such as car repairs and services, medical bills, or pet costs.
Remember, effective budgets are about understanding your financial situation and spending accordingly. Stay away from unsustainable or overly restrictive budgets.
If you already have a budget, the new financial year could be the perfect time to review it.
Consider how realistic it was, if there were any additional expenses you overlooked, and if it helped you reach your financial goals. If it wasn’t effective, use this time to improve and tweak your budget for the new financial year.
5. Check for changes in legislation
The new financial year is not just an ideal time for you to review your goals, but an important time to review changes to legislation that may impact your financial situation.
Make sure you stay up to date with current legislation that may affect you to ensure you’re making the most of your money and won’t have any nasty surprises down the track.
6. Invest to make your savings work harder
Another option to build your wealth in the new financial year is putting your savings to work by investing.
Investing can bring reward and financial security with the potential to generate higher returns on your money than by sitting in a savings account, especially in the ultra-low interest rate environment we currently find ourselves in.
However, it’s important to understand that all investments carry risk. It’s important to be prudent with your investments, make informed decisions around risk and seek appropriate advice from a licensed financial adviser for your own financial situation and stage of life.
Take the time to speak with your financial adviser and consider implementing different savings strategies like those above. They may help you reach your financial goals, sooner rather than later.
Want to learn more about investing?
Read our article explaining the capital structure of investment options, so you can choose the right investment option for you.
This article is issued by Trilogy Funds Management Limited ACN 080 383 679 AFSL 261425 (Trilogy) and does not take into account your objectives, personal circumstances or needs, nor is it an offer of securities. Investments in Trilogy’s products are only available through the relevant PDS issued by Trilogy and available at www.trilogyfunds.com.au. All investments, including those with Trilogy, involve risk which can lead to loss of part or all of your capital or diminished returns. Investments with Trilogy are not bank deposits and are not government guaranteed.