Published on February 25, 2016 9:05 am, by Jen Bakker
Want to go on a holiday? Buy a new car? Thinking of getting married? Want to start an emergency fund? All valid reasons and a great motivation to getting that savings ball rolling.
Just like all good things, a plan will set you up for success and get you moving ahead on your journey. Here’s 5 things to do to set you on your way:
#1 Pay off Debt
Credit card debt, personal loan debt, unsecured debt. The interest rates on these types of finance are referred to as “bad debt”. This reason is two-fold, firstly they are not attached to an asset that is appreciating in value. Secondly, the interest rates tend to be high, sometimes exorbitantly high.
Savings accounts typically pay a lower interest than credit accounts. Starting to save while you are in debt is counterproductive in that you will earn much less credit interest than you will pay debit interest. Therefore holding debt and savings will hold you back, much more than if you were to pay off your debt first and then start saving.
#2 Work out how much you can spare
Actually taking the time to sit down and work out your income VS your expenses will give you a really good starting point for discovering how much you can put away before spending each pay cycle. Are there things you can do without that you can convert to savings?
Don’t know where to start? Link your accounts to MoneyBrilliant and have your spending categories and amounts shown to you.
#3 Open an account that is difficult to access
Once you have positioned yourself to save, it’s time to open a savings account that is difficult to access. There are online accounts available where you need to wait 24 hours for the funds to be in your account. Alternatively just having an account at a different bank to where you hold your transactional accounts might be the impetus you need.
Often the value of an account that isn’t linked to your ATM card is psychological, it’s just that little harder to access your funds when you have a sudden impulse to spend.
#4 Set up an automatic payment to come out of your account on payday
Check out your options for having money go straight into your new savings account. Can you have part of your pay credited directly to that account? Or is it better to set an automatic payment up from your account each pay day into your savings account? The best way to succeed is to have your savings debited from your account before you spend. Those who spend first and save at the end of the period would generally save less.
#5 Set yourself a savings goal
Know what it is you want. Why are you saving? Have a reason or goal in mind that stops you from dipping into your growing fund. Think about what success looks like and how much you need to save to achieve it. Share your goal. Tell you friends what you are saving for. Be accountable!
Jen is an experienced banking professional who loves wine, coffee, finding a bargain and of course her three beautiful children. Since Jen's first budget led her to buy a home at 20, Jen has passionately helped others to make better decisions with their money.