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5 savings strategies you should know in 2022

Posted: 25 May 2022 12:00 pm
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From generating passive income to leveraging the magic of compound interest, here are 5 ways you can save money (and generate more of it) this year.

Sponsored by Swyftx. Trade 300+ cryptocurrencies with AUD deposits, earn yield and setup auto recurring orders for dollar cost averaging. All with a feature-packed app, two factor security and downloadable tax reports.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade.

Different people save money in different ways - there's no one-size-fits-all approach to saving. It can be a lot of trial and error to find a strategy that works for you and your goals. For example, some people are more comfortable actively investing, while others would prefer to sit back and generate passive income.

If you're looking for new inspiration to save money this year, here are 5 different saving strategies you can test out.

1. Passive income

If you like to take more of a set-and-forget approach to your finances, there's a few ways you can generate passive income. One popular example is to invest in high-yield dividend stocks, which are often blue chip stocks with long track records of paying dividends to shareholders.

As well as stocks, these days you can also earn a return on your cryptocurrency holdings too. If you're already in the crypto market, you might be interested to know that your holdings can generate passive income for you while you're not using them.

For example, Brisbane-based cryptocurrency exchange Swyftx allows crypto traders to earn a return on major digital assets including Bitcoin (BTC), Ethereum (ETH) and Cardano (ADA) in addition to stablecoins like TrueAUD (TAUD) and USD Coin (USDC). This gives you the opportunity to not only invest in these digital assets, but to earn yield on them too.

The level of return you can get with Swyftx Earn is higher than you'd find with an interest-bearing cash savings account. However, unlike a savings account, there is more risk involved and your capital with Swyftx isn't guaranteed.

2. The power of compound interest

You might think that it's not worth having any money in a high interest savings account while the rates are quite low. Yes, savings rates are low at the moment, but it's still free money!

If you choose to keep your money in a regular bank account instead, you're missing out on the chance to earn compound interest. Compound interest means you can earn interest on top of your interest. The more your balance grows, the more interest you'll earn, and the more your balance will continue to grow.

For example, let's say you had $20,000 in a savings account and after the first month you've earned $30 interest. The following month you'll earn interest on $20,030 - so your balance will continue to grow without you even needing to add any more money into your account.

Savings accounts have one other major benefit too - they're extremely safe. Your money up to $250,000 in a savings account with an Australian bank is protected by the government. So if something were to happen to the bank your cash would be safe, which isn't the case with other forms of investing.

3. Dollar cost averaging

Global share markets have been very volatile for a couple of years now. Huge gains followed by steep losses are common and frequent, especially if you're picking individual stocks to buy instead of investing into something like an exchange traded fund. That being said, shares remain one of the best-performing investments over the long term.

One strategy that allows you to continue to invest in the sharemarket without the pain of sudden share price falls is dollar cost averaging. With this strategy, you continually invest smaller amounts over long periods instead of investing a huge chunk all at once. For example, instead of investing $10,000 into an index fund in one go, you could invest $500 a month over a couple of years.

You'd invest at regular intervals regardless of what the share price is doing at the time, which gives you a more accurate 'average' price of the stock or fund over the long term. This way you're not trying to 'pick' the market by timing your purchase - remember, it's time in the market that counts, not timing the market.

4. Use multiple savings accounts and 'buckets'

If you're struggling to stick to a budget and seem to always spend money on impulse purchases, separating your money into different buckets can be helpful. The idea with this strategy is that you look at your income versus expenses, and determine how much money you want to allocate to certain things in order to meet your savings goals.

For example, you can have one account that is your 'house deposit bucket' where you add a certain amount each month and don't make withdrawals. Another account could be your 'bills and expenses bucket' where you pay for all your ongoing expenses - everything from your rent to your groceries and Netflix subscription. Another account can be for the fun spending - things like eating out at restaurants, retail shopping, going to the movies and impulse purchases.

Once you've used up the money in your fun spending account for the month, that's it, no more impulse purchases or eating out until you top it up again next month. This can be a useful strategy to help you stick to your savings targets.

5. Salary sacrifice into your super

You might not give too much thought to your super as it seems like a 'future you' thing, but adding more money to it now can really supercharge your retirement savings. Making extra super contributions while you're young can help you retire with a much bigger balance later.

An easy way to do this is via salary sacrifice. This process allows you to send some of your pre-tax income into your super fund each payday. Because it's from your pre-tax income, the money will be taxed at the concessional super fund rate of 15% which is likely to be lower than your standard income tax rate.

Another benefit of salary sacrificing into your super is you're not only paying less tax on the money you contribute, but you're also lowering your overall taxable income at the same time. This means you'll pay less income tax at tax time.

You can choose how much you want to add to your super each pay day, and start or stop at any time by speaking with your employer. And it doesn't need to be much - even monthly contributions of just $50 can help you retire with an additional $68,000.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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