Recent changes to the economy have also seen changes in our spending habits. And the significant increase in housing prices has made saving money even more difficult for many Australians.
The average Australian household spent $108,291 in 2021, equivalent to $2083 per week. Unsurprisingly rent and other dwelling services were the largest expense, closely followed by food, recreation and culture, insurance and other financial services.
Money-induced stress can make it hard to focus, but there are some ways to increase your understanding of how to save. Not only can these tips help you save for short-term goals, like your grocery bill for next month, but they can also help you save for long-term goals, like a home deposit.
1. Create a Budget
According to Forbes, a good rule of thumb to start with when budgeting is the 50/30/20 approach. This flexible approach encourages you to contribute 50% of your income to mandatory expenses, such as bills, groceries, debt repayments etc), 30% towards discretionary spending (e.g. shopping, dining out etc.) and 20% towards your savings.
Start this process by reviewing your bank statements, bills, and receipts to work out all your regular expenses and then deduct these expenses from your income. And if you’re spending more than you earn, you might want to ask yourself what you could cut out or cut back on.
2. Track Your Spending
We can fall into the trap of thinking spending on big things is what gets us into trouble when often it’s the little things that end up costing us more.
That’s why it’s important to keep track of your day-to-day spending, so you don’t live beyond your means. You can keep track of your money in free spreadsheet software like excel or numbers, in an app or by setting a day-to-day spending amount.
Some budgeting apps include:
Alternatively you could access free resources from an accredited financial advisor like Victoria Devine from She’s on the Money.
Your bank statement will also tell you how much money is going into your bank account and how much is going out. You can then compare it with your budget to see whether you’re sticking to it or not. Then you’ll be able to identify any areas where you think you can save.
3. Mastering Credit Card Rewards
If you’ve got a significant amount of credit card debt then having a plan in place to pay it back will help ease any money-related stress you may be feeling.
The best way to avoid interest charges is to pay off your credit balance every month. To avoid missing your minimum repayments, MoneySmart recommends setting up a direct debit. And, if you can, try to make extra repayments to avoid paying more in interest.
You’ll also want to look for a provider with an annual fee that is less than the rewards you’d earn. This will allow you to pay less and enjoy more travel discounts, cash back on rewards or discounts from retail chains.
4. Create an Emergency Fund
During tough times you’ll want to have some finances you can fall back on. This is why you should consider saving for an emergency fund should the unexpected happen. Such as being made redundant or needing to look after a sick family member.
The rule of thumb when it comes to creating your emergency fund is to have three months’ income saved for emergencies and ideally six months saved if you have a mortgage. You can start this process by setting up a separate savings account and automating your savings so that you’re less likely to take money out of this account.
5. Don’t Splurge on Payday
The temptation to spend big on payday will always be there, but as long as you prioritise your most important outgoings and contribute to your savings before you spend then you’ll be able to stay on track for your next payday.
Interestingly Fintech start-up WeMoney found that nearly a third (29.7%) of Australians surveyed live from paycheck to paycheck . We can only speculate that by splurging at the beginning of the pay cycle there’ll be less money to contribute to the more important things that may come later.
6. Claim the WFH Deduction
If you’re an employee who works from home in Australia, you may be able to claim a tax deduction for expenses related to your work. But before you claim you’ll need to ensure that you’ll be meeting all of your employment duties and that additional expenses are incurred as a result of working from home.
According to the ATO you may be able to claim a deduction for any additional running expenses that relate to you working from home.
Electricity expenses for heating or cooling and lighting
The decline in value of office furniture and furnishings as well as other items used for work - for example, a laptop
7. Cancel Automatic Subscriptions and Memberships
If you take a look at all of the entertainment, music and exercise subscriptions and memberships you own, how many of those do you actually use? An easy way to save money each month is by cancelling any subscriptions or memberships you don’t use regularly.
You can start by looking at how often you watch, listen or use each subscription and membership and then prioritise them from the most important to the least important. That way you’ll be able to determine which ones you should cancel and which you should keep.
And if you’re wanting to try a new subscription make sure you turn off auto-renew at purchase.
8. Cut Down on Non-Essential Spending
Sometimes spending on extras can add up! While we often budget for the essentials it’s the non-essential items that can push spending outside the limits.
Non-essential items can include:
Household items (e.g homewares)
Personal care (e.g skincare, makeup)
Try sticking to a bare minimum budget without any of these non-essential items. This will help you identify where you can cut down on spending and which non-essential items you can’t live without.
9. Make the Most of Resale Platforms
Instead of throwing away old clothes, you may want to exchange your items for cash via resale platforms like Depop or eBay. Taking advantage of resale platforms allows you to pass on your clothes to a better home and make some money back in the meantime.
10. Plan Ahead
Even with the best of intentions to save and budget, the unexpected can happen and you’ll need a degree of financial protection, which is where life insurance can come in.
Life insurance is most useful for people who need to provide security for a spouse, children, or other family members in the event of their death and, depending on the level of cover, can help beneficiaries pay off a mortgage, cover education costs, or help fund retirement.
Read more about Life Insurance with Budget Direct.