How to save $20,000 in one year: the 7 things to do to boost your bank balance in just 12 months

Financial planning expert Helen Baker has revealed the simple steps to save $20,000 in just one year, and why you need to see your financial health as something that is as important as your mental or physical state.

Helen says there are several things you can do to take charge of your finances to make sure you’re truly independent – including changing your spending habits and buying your own property.

‘With a little effort, you could be saving $20,000 per year,’ Helen told FEMAIL.

So what do you need to know?

1. Get your foundation right

The first thing Helen said you need to do is think about your savings and what you’re doing to keep your bank balance healthy.

‘Think of building your savings like putting on makeup – you need to start with a good foundation, and that means having protections in place,’ she said.

Helen recommends that you get an emergency ‘cash stash’ set aside, so you can always cover any unexpected costs that come up.

‘Similarly, income protection insurance or trauma/critical illness cover can be useful should you fall ill,’ Helen said.

While investing in these can mean you are temporarily out of pocket, the financial adviser explained that they will always benefit you over time, as you won’t need to dip into your savings at a later point.

2. Mind the step

The second thing Helen said you need to do is get the right income protection insurance.

‘There are generally two types of income protection premiums: level and stepped,’ Helen said.

‘Level starts off more expensive but increases slightly over time, whereas stepped increases significantly as you get older.’

Helen said even though the majority of people opt for stepped insurance because it’s cheaper at the outset, getting level first thing can actually save you ‘thousands of dollars over your working life’.

‘These are valuable dollars you can put into savings,’ Helen said.

3. Change your spending habits

The third – and perhaps the most important thing to do to save money – is change your spending habits for good.

‘Think about your spending habits on a day-to-day basis,’ Helen said.

‘Before social distancing was a thing, did you catch public transport to work? That’s $10 per day. Grab a coffee? Another $4. Buy your lunch? Add $15. After work drinks? Say $20.’

This all adds up to around $49, or an extra $980 each month.

‘Lock in those savings over a full year of working from home, and your bank balance should swell by $11,760,’ she said.

4. Consider buying your house rather than renting

Helen said that with interest rates at a historic low, now might be the time to buy your own home instead of renting.

‘According to CoreLogic, the median weekly rent in January 2020 was $440 (equating to roughly $1,906 per month),’ Helen explained.

On the other hand, if you have a $400,000 mortgage with an interest rate of 3.02 per cent per annum, your monthly repayments on a principal and interest loan would only be $1,691.

‘Of course, there is stamp duty, legal and other up-front costs to consider. But like-for-like, that’s a difference of $215 each month or $2,580 over a full year,’ Helen said.

You would also be paying off your own asset, rather than someone else’s.

5. Employ the economies of scale

When people say you have to spend money to make money, there is some truth to the logic.

Helen illustrated this with an analogy of Tim Tams:

‘A family pack of Tim Tams generally isn’t double the price of a standard pack, so you’re effectively getting each delicious biscuit cheaper if you buy more at once,’ she said.

The same is true of buying a house.

Helen explained that buying a two-bedroom apartment is generally not double the price of a one-bedder, so if you can buy, consider getting two bedrooms and rent out the second room for $150 per week.

This should make an impressive $7,800 per year.

6. Catch up your superannuation

Helen said one of the things she loves doing is making ‘carry-forward concessional contributions’ to your superannuation.

‘Effectively, this allows you to “catch up” on your super as you earn more, offsetting any periods when your contributions may have been lower or absent,’ the expert said.

This is an especially good idea if you’re a woman who took time off or reduced your hours when caring for kids.

‘The sooner you take advantage of this, the longer your super balance has to grow before you retire,’ she said.

Speak to a financial adviser if you want to get started.

7. Keep your debts in check

Before you get going on any savings, it’s absolutely vital you pay down and pay off any debt first.

‘The interest rate on your credit card is probably close to 20 per cent per annum,’ Helen said.

‘Variable home loans are currently around 3 per cent. The HECS/HELP student loan indexation last financial year was 1.8 per cent.’

When you stop to consider this, Helen said it makes sense to pay off the bills with the highest interest rate first.

This can save you hundreds or even thousands of dollars in the long run.

This article was originally published in The Daily Mail