How to apply this in the real world
Meet Jim. Jim has just turned 23 and set himself a major life goal: by the time he’s 30, he wants to have enough money saved to buy himself a unit. Jim earns $60,000 a year and has set a goal of saving $80,000 for a home loan deposit.
However, when he sits down to track his income and expenses, Jim realises that he’s going to have to make some big changes if he’s ever going to build a big enough savings balance. As it stands, Jim spends most of his $5,000 monthly income each and every month. On the rare occasions he does have anything left over at the end of the month, it’s usually only a couple of hundred dollars and Jim always finds a way to spend it sooner or later.
Jim resolves to cut back on his spending wherever possible. While there are some expenses he knows are always going to be part of life, things like car rego, groceries and even coffee, Jim knows daily expenses often add up.
Jim decides to do the following:
- Find a cheaper place to rent. If Jim moves from his inner-city apartment to a place a little further out in the suburbs where the rent is $80/week cheaper, he could save $4,160 per year.
- Eat out less. Instead of eating out four or five times a week and spending $200 in total, Jim can save money by getting the food from his favourite restaurants brought to his door via Uber Eats. By carefully looking at the necessity of his daily purchases, he decides to cook an extra meal at home twice per week, which saves him $50 a week, or $2,600 per year.
- Make smarter alcohol choices. Jim usually goes out for after-work drinks at an inner-city pub a couple of times a week. At $10 a pint, he can often spend $40 or $50 a night on drinks alone. By cutting out one or two of those pints each time he goes out, Jim can save an average of $30 per week.
- Do a credit card balance transfer. Jim currently has a $3,500 credit card debt accruing interest each month. By transferring his debt to a card that offers 0% p.a. interest on balance transfers for 24 months, he can save $1,100 in interest payments over the next two years.
- Cancel his gym membership. Jim never goes to the gym anyway, so why not pocket the extra $800 each year?
- Quit smoking. Jim currently smokes an average of 20 cigarettes a day, but he decides to give them up to enjoy the health benefits and to save some extra cash. This will save him $3,800 a year.
- Take out health insurance extras cover. Jim is young and relatively healthy, but he still has a six-month dental check-up for a total cost of $460 per year. By taking out extras cover health insurance that includes cover for preventative and general dental, Jim can save $210 a year.
- Conserve energy. By turning off or unplugging all devices that have “standby” mode when not in use, such as his TV and laptop, Jim can save 10% off his power bills. He usually pays $350/quarter, so this simple hack can lead to savings of $140 per year.
| Old cost (per year) | New cost (per year) | Total saved per year | |
|---|---|---|---|
| Rent | $26,000 | $21,840 | $4,160 |
| Eating out / Uber Eats | $10,400 | $7,800 | $2,600 |
| Credit card balance transfer | $550 | $0 | $550 |
| Gym membership | $800 | $0 | $800 |
| Quit smoking | $3,800 | $0 | $3,800 |
| Alcohol | $4,680 | $3,120 | $1,560 |
| Dental check-ups / extras cover | $460 | $250 | $210 |
| Conserving energy | $1,400 | $1,260 | $140 |
| Total annual savings | $13,820 |
As you can see in the table above, these simple lifestyle changes and spending decisions will allow Jim to save $13,820 a year. By the time he’s 30, Jim will have amassed $93,990 for a deposit (and that’s before we even take into account any interest earned on his savings).
*Savings from the balance transfer credit card outlined in the table above have only been applied for two years, which is the interest-free period on Jim’s new card.
