Many people complain about never having enough money to save. Interestingly, these same people will throw away their hard-earned cash on extravagant and often unnecessary purchases.
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It’s not in their nature to be frugal. But without some sort of restraint, their financial situation could very quickly spiral out of control. If that happens, not only will they be unable to save; they will also go further into debt.
The 2011 Eye on Australia survey revealed that squarely half of Australian adults were living from week to week. If you look at the rest of the survey, you wouldn’t be surprised: 42% said they got their comfort from shopping, 48% expect their spending to increase this year, and 57% have less spending money than they did 12 months ago. With consumer debt getting bigger as we speak, the numbers can only rise.
But if you’re struggling to keep up, maybe it’s your lifestyle, not your budget, that’s falling short.
There are many simple ways to save. More often than not, people who have trouble saving are putting excessive amounts into things that don’t yield proportionate returns. Simply put, they’re not getting good value for their money. What they need is a lifestyle change. You’d be surprised at how much you can save per month by just adjusting a few habits. Here are a few examples.
1. Bank fees
Fees are perhaps the one thing banks are generous with. These include overdraft fees, late payments and penalties, ATM withdrawal fees, and annual fees on credit cards. Usually these range from a few cents to a few dollars a month, which isn’t much to the average wage-earner. But it all adds up: in 2009, consumers put $5 billion worth of fees in banks’ pockets (businesses forked over another $7.6 billion), according to the Reserve Bank of Australia. Deposit account fees fell, but were compensated by a rise in mortgage fees.
A little planning can help you avoid many of these extras. For instance, most companies now offer a direct deposit option for your pay cheque, so you don’t have to pay fees to deposit or cash it in. Bills can be automatically paid from your account, eliminating the risk of late fees. And when you need to withdraw money, find one of your bank’s ATMS—they allow you to withdraw for free, unless you have a transaction limit. Avoid withdrawing money overseas if possible, as the fees can be exorbitant.
If you’re still paying for online and telephone access to your account, bring it up with your bank. Free personal banking is standard in many institutions, so paying for yours simply doesn’t make sense. Move your account somewhere else if they refuse to lift the fees. It’s their loss, not yours.
2. High-interest credit cards
Credit card debt is expensive, so you’ll want to hold on to any potential savings. In mid-2010, research showed the average credit card rate in Australia was 17.04%, much higher than in the U.S. where rates averaged 14.7% in the same period. The average credit card debt of $3,321 can therefore grow by $565.89, if not more.
Just like shoes and houses, credit cards require a bit of comparison shopping. Keep an eye open for low-interest offers, but look deeper and see if there’s a catch. There usually is—it may be an introductory rate that’s good for the first six months, a balance transfer rate, or a variable rate (meaning it can rise or fall depending on market conditions). It’s mostly a matter of making the good points work for you and skirting your way around the bad. For example, a balance transfer card can help you get rid of older debt for cheap—as long as you pay of most of it (if not all) within the promo period and keep your spending in check.
Why do people pay for high-interest credit cards when cheaper ones are just as readily available? Most of them do so for the rewards. For example, store-issued cards, which offer discounts or cash-backs, often have higher interest rates than bank-issued cards, according to Money Smart. But before opting for a store card, make sure the rewards are worth the extra interest you will pay. Better yet, don’t carry a balance—that way you’ll only ever pay back what you spend, with no finance charges.
3. Keeping cash at home
Piggy banks are for spare change. If you’re used to keeping large wads of cash in your wallet, you’re missing out on many opportunities to earn. In a bank account, money earns interest—the amount your bank pays you for letting them use your money. Basic transaction accounts earn little to no interest, but high-interest savings accounts, term deposits, and online savings accounts earn enough to make a difference.
The drawback is that high-interest savings accounts usually have limited access and stricter terms. For example, you may be limited to five withdrawals per month or have to pay to withdraw above a certain amount. There may also be fees for transferring between accounts. To get the best of both worlds, Choice recommends a cash management account, which is basically a savings account linked to a transaction one. This allows you to transfer money instantly and usually for free, and lets you put money you don’t need where it can earn the most interest.
4. Memberships and subscriptions
Are you still receiving issues from a magazine you no longer read? Still paying for a gym membership you stopped going to six months ago? Are you being charged for extra features on your phone that you don’t even know how to use? Many of these commitments are the product of rushed decisions ("I have to lose this holiday bulge by March!") and are costing people hundreds of dollars a year. How about reading your favourite magazines at the library? —it’s free, and most libraries keep their stock up to date.
5. Sales and ‘great deals’
Marketing and sales professionals make a living out of getting you to buy things you don’t really need. One common trick is to make you think you’re saving money instead of spending. A $100 pair of pants at 70% off sounds great, but the feeling of having ‘scored a great deal’ fades away pretty fast. When it joins the fifteen other pairs of pants in your closet, you’ll realise you didn’t really save $70; you spent $30.
Limited-time offers are another clever way to part you from your money, according to The Age. Almost every season, stores claim there’s never been a better time to buy a Blu-Ray player, or urge you to buy "while supplies last". This creates a sense of urgency that pushes you to buy when you would normally just head home and sleep on it.
6. Brand names
How much influence do brand names have over you? A lot—and it’s not just your buying decisions. A 2010 study by Professors Dan Ariely of Duke University and Francesca Gino of Harvard Business School shows that people who were told they were wearing fake brand-name sunglasses (but were actually wearing the real thing) were more likely to cheat and think badly of others than those who thought they were wearing the $300 originals.
When you push past the brand barrier, you’ll be surprised to see that products are actually quite the same across the board. There’s an obvious difference between a Prada bag and a department-store polyester tote, but the price gaps are hardly ever justified. Turn a blind eye to the label and shop for quality—you may still pay a premium, but you’ll know you’re getting your money’s worth.
7. Buying new cars
You can sell a house for a profit in a good market, but cars will depreciate in any economy. Buying a brand-new car with an auto loan is just impractical—by the time you’re done paying it back, your car will have lost half its value. It makes more sense to buy second-hand. Even a slightly used car will be hundreds or thousands of dollars cheaper than its brand-new counterpart. If you’re concerned about image, choose a maker that doesn’t vary its models much from year to year.
8. Fad diets and products
Organic, all-natural, 100% satisfaction guarantee—a company will wear any label to get you to buy their product, or make you think it’s worth the extra $10. The fact is that no product or diet can safely make you drop ten pounds overnight or grow three inches taller at 26. Such false claims make up a growing problem in the pharmaceutical industry, according to the Australian School of Business at the University of New South Wales. If it sounds too good to be true, it probably is. Unfortunately, millions of dollars are still being spent every year on fad diets and regimens—books, videos, dietary supplements, specially formulated creams.
9. Infomercial products
Many of the fad products mentioned above are found on infomercials—long-format commercials disguised as informative, objective shows. Although governments sometimes use them for public announcements, infomercials are more popular as a medium for products that aren’t just low-quality, but also overpriced. They use the same sense of urgency mentioned above ("Call within the next 20 minutes!") to sell you a product you could probably find at Woolworths for less.
Also, while infomercials themselves are monitored, the products they sell can slip past quality controls. Just this month, an infomercial host was charged with selling a coral calcium supplement said to cure cancer and arthritis, without getting a permit from the Food and Drug Administration.
10. Hobby equipment
When you find a new interest, you’re often so fascinated by the idea that you head out as soon as you can and buy everything you need. And with credit so readily available, it’s hard to resist breaking out the big bucks—last summer, young music fans spent up to $600 a night at music festivals. But when it turns out to be just a phase, as it often does, that $2,000 telescope or $3,000 mountain bike will be gathering dust, and not even appreciating (like jewellery or vintage bags). Buy what you need as you need it. If you need a large initial investment to get started, consider renting the equipment or buying second-hand.
11. Paid storage
Self-storage companies offer a quick but unfortunately pricey way to stash away things you don’t need. Monthly fees range from $151 for a 3x3-metre space to $349 for 3x8 metres, according to storage broker Spaceout. Prices are slightly higher in major cities like Brisbane, Perth and Adelaide, and almost twice as much in Sydney—a large space can set you back $800 a month!
Instead of paying a week’s worth of groceries for a space you hardly even set foot in, why not get rid of your old stuff? Hold on to things that have sentimental value, but look at everything else with an unbiased eye. Surely there’s someone else who can use your old lawnmower, the bike your child has outgrown, or your college textbooks. Have a garage sale, or better yet, find a place to donate them (and get a tax cut).
12. Satellite TV
Satellite TV is fun, but most subscriptions are bundled with phone, internet, and other utilities you probably already have. Many are also offered at introductory rates and then revert to a "regular" rate later on, much like a credit card. The service still has room to get cheaper, as is always the case with new technology. In the meantime, subscribe to Freeview, Australia’s free digital TV service. You’ll get most of the popular channels, and if you miss episodes of your favourite show, there’s always the internet. If you’re set on getting satellite, see if you qualify for government assistance to help you with the costs.
13. Extended warranties
When salespeople push you into buying an extended warranty, just say no. There’s very little chance you’ll need the service. For one thing, there’s a consumer guarantee on all products sold in Australia. For another, most small electronics have a short lifespan anyway—you’ll have replaced them by the time the extended warranty expires. Your credit card issuer may even provide the extended warranty for free. Other warranties, such as manufacturer’s warranties and warranties against defects, may be useful but shouldn’t cost you significantly more.
Holiday season is when people are pressured to buy gifts, and being out of ideas and/or pressed for time, they are easily persuaded that a singing robot dog or a neon alarm clock is the perfect gift for Aunt Emma. Or when you’re in one of those "gotta-buy-something" moods, you might even get it for yourself. You may love it at the time, but two months later the novelty wears off and you’ll wonder what got into you. Just last Easter, retail sales reached an eight-month high, beating out Christmas, according to NineMSN. Put more thought into every purchase and spare your home (and your friends) the task of storing unwanted trinkets.
Australians are among the world’s biggest pet lovers: 63% of households have pets, compared to 62% in the U.S. and 46% in the U.K. But cute and cuddly as he is, Rover can end up costing you as much as a child. Visits to the vet, dog food, supplements, grooming, and emergency treatments can add up to thousands of dollars a year. And unlike humans, pets don’t have government health insurance—you have to take out your own policy if you want it, and like any other insurance, it’s costly and complicated.