Danielle McCarthy

Retirement Income

How to save money right now

How to save money right now

"Saving more money" is top of the list of many people's resolutions – but it very rarely works.

There are a number of reasons for this.

The first is that most people are very vague about what they want to save. "More" does not mean anything – and so no money is ever saved. Other people do a little better when they set a goal such as wanting to save $100 a month. But they often are unsuccessful, too.

Wonder why? It is because most of them draw up a budget, or have a vague idea in their heads of spending less, and decide they will save what is left over at the end of the month. This almost never works. Even with a good budget, if you have money in your bank account, it is so easy to spend it.

The key to saving money is to know at each payday how much you can afford to save and to transfer that money to a savings account immediately. Do not touch it, do not sit on it for a while, do not think about treating yourself this month. Transfer it straight away, or better yet set up an automatic payment for the same day money comes into your account.

It should be sent to an account that you cannot touch easily. Banks will allow you to have an account that you cannot access from your online banking login, so you will have to go into the branch if you want money. Some people even set up savings accounts that require more than one signature to access, so if they want to tap in, they have to convince the other person that it is a good idea. You could also have a bank account with a different bank so you do not see the saved amount sitting there temptingly every time you log in to check the balance of your everyday transaction account.

In many cases, a basic savings account can be run with very few, or no fees.

Whatever it takes to reduce the temptation to raid your savings account, do it. It is too common for people to tell themselves they will "borrow" money from their savings accounts to pay for something – but then it is rarely paid back.

Each time you are paid, divide up the amount that you know is your surplus in the budget and put it into your savings accounts. You might have one for a holiday, one for a house deposit, and so on. Have as many bank accounts as you need to, to help you get your head around where the money is going. It might help to give the accounts your goals as names.

Make sure you you get your partner and anyone else you share money with on board with your plans. Having that moral support will make you much more likely to reach your goals – and if they know what you are working towards, and are helping too, they are much less likely to derail your plans.

Whatever you are saving for, it is important that you set up an emergency fund. Lots of experts say this should be equal to six months' income but that can be too difficult a target for a lot of people. Aim for three months. This money should cover you if disaster strikes, such as if you lose your job, your car dramatically breaks down or you need to take some time off work due to sickness – and you are not insured.

Once you start saving, you will probably be pleasantly surprised at how quickly it can add up. If you start saving $20 a week in an account giving you 2 per cent interest, you will h ave almost $5000 in five years. Save $35 a week and you will get to $8662.

Tim Barnett, from the National Building Financial Capability Charitable Trust, says it is worth making sure you have  the right type of account.

"Compare the accounts on offer from your bank and choose carefully. One of the least appealing accounts we have come across is a well-known bank's  Earner Account, which pays a tiny 0.1 per cent interest as long as you have an average $5000 average monthly balance. 

"A $5000 balance would earn you $5 per year  - hardly an incentive to save. They also have a Simple Saver account, also offering 0.1 per cent interest calling this account 'competitive'.  The Online Bonus Saver offers up to 2.1 per cent per annum – 21 times the Simple Saver – but the interest evaporates if you make a withdrawal during the month, or fail to make a deposit."

Reward yourself

If you are on track for a longer-term goal, give yourself regular rewards. When you get to $1000 saved, for example, go out for dinner.

The other side of the ledger

Saving requires more money coming in than is going out.

If you have trimmed all your spending to the point where you cannot cut any further, you might need to consider how you can boost the income side of the balance sheet.

Is there any way you could work towards a payrise at work? Could you take on some extra work in your spare time to make some money – even things such as babysitting at the weekend can provide a little extra for your savings account. Or consider a sideline business you could run from home in your spare time – there are a lot of opportunities available, including everything from Tupperware to cleaning products and these can be quite lucrative if you are a confident networker.

Upskilling or getting more qualifications is a good investment if it boosts your earning power over your lifetime.

Lifelong skills

Tonya Russell says she has been a good saver most of her life – apart from a stint in Dubai, where she spent her money travelling.

Each payday, an automatic payment takes money from her transactional bank account to a savings account. "I have an account for household stuff and the rest is spare. I take money monthly for saving but I save more than that because I simply don't spend as much as I earn," she says. "But I also never say 'I can't afford' things. I wonder how I can afford it and look for ways to make that happen."

She says she has been careful not to take out hire-purchase agreements or pay interest on things other than her mortgage. As well as being careful about her spending, asking herself where she will put things before she buys them, and not buying coffee during the day any more, she has worked to bring in more money as well as limiting what is going out, through setting up her own business as a yoga teacher and selling products that fit in with that, such as essential oils and supplements. "I have worked to create income streams rather than solely relying on wages."

Do you think you’ll try these tips?

Written by Susan Edmunds. Republished with permission of Stuff.co.nz.