How to be frugal

Do you find yourself constantly overspending and piling up debts? It might be time to change tack on how you manage your finances.

finder.com.au have put together a three pronged strategy to get you back in the black and into savings mode. It’s all about knowing how and when to spend, why you should save and how to control your debts.

Many other Aussies are paying huge amounts of interest simply because they have racked up credit card debts. The credit card debt nationwide in 2013 alone was a staggering $35 billion – that’s over $4,400 for every credit card holder. In fact, the overall debt burden in Australia has been on the rise in 2013 with average interest rates for credit card repayments averaging 19.55% p.a..

Its time for you to start changing the way you have been managing your finances. Even if you think that you will be labelled as being ‘cheap’, it will be worth it when you no longer have to worry about how you are going to pay back a rising debt burden.

Reduce your debt burden

• Use less cards, preferably only one. Consolidating them into one easier repayment will mean it is not only faster to keep control over how much you owe, but you will ultimately pay fewer bank fees as well. If you are paying off a home loan you can usually combine the loan package with a credit card on the same account.
• Pay off your debts first before you start saving. Repayments always have a higher interest rate than savings, so it is not cost effective to put your surplus money into a savings plan while you still have debts. Pay them off first, then start saving.
• Stagger your debt repayments. Rather than trying to repay all your debts at the same time, pay off your smallest debt first. Then concentrate on the next one. Aim to pay off all your debts as soon as possible and close any credit cards which are used the least.
• Check out a credit card balance transfer. Several companies are offering interest free periods for all new credit card transfers. By transferring your credit card balance over to one of these interest free options you could save yourself around $85 over six months for every $1,000 of debt.
• Plan your repayments carefully. When you incur debts you will find that sticking to the repayment period will save you having more to pay in the next period and you will keep any interest free periods, too. Keep a calendar for all your debts and make sure the repayments are made on time.

Manage your spending

• Get into the habit of checking your bills and receipts. Do you ever look carefully at all your bills and receipts? If not, then it may be time to start. To begin with, you might think twice about some of the luxuries you’ve been buying. You may be able to shop around different suppliers to see if there is a better deal being offered and it’s also worth checking out cheaper insurance policies when your policy next comes up for renewal.
• Make a list of your spending weaknesses. If you’ve been spending far too much, have you seriously considered what you were spending the most on? Sit down and make a list of everything you spent the last week or fortnight. What were the luxuries that you really can’t afford. What online shopping sites do you frequently use? If you routinely use your credit card on any of them, delete the details just to make it harder to use your card the next time.
• What can you do yourself? Paying someone else to do something you can do yourself is a waste of money if you really can’t afford it. It doesn’t mean you have to suddenly turn into a DIY nut or totally change your personality. It’s a matter of keeping your spending under control so you can afford the things you really need or want later on.
• Make use of specials and sales. Instead of buying something when its available, wait until you see it on special or on sale. On the other hand, make use of anything that is advertised at a discounted rate when it does become available rather than paying over the odds later.
• Control your generosity. It’s great to splash out on friends and family, but you can spend a lot of money that way. Let it be known that you are trying to save up for something - give it a name - and the same people will understand why you are being more careful with your money.

Get into a savings habit

• Make savings a personal goal. As we said at the outset, it’s all about application. By developing a personal goal to see your savings grow and your personal debt being reduced, it can be both comforting and rewarding.
• Switch accounts regularly. Keep an eye on which company is offering a competitive savings rate. Many banks, credit unions and other financial institutions will often offer an attractive introductory rate which may be free of any accompanying fees just to get you change over to them. By changing your savings accounts regularly you can keep taking advantage of the best interest rates on offer.

Don’t be jealous of your financially adept friends who pay off their credit cards monthly, by following these steps, you’ll slowly become one of them.