Secret savings – find over $20,000 a year!

With a little effort now, you could be saving yourself some $20,000 a year – you just need to know where to look. Financial planner and author Helen Baker explains how.

When it comes to looking after ourselves, our financial health is just as important as our physical and mental health. And women are more empowered now than ever before to take control of our finances and be truly independent!

GET YOUR FOUNDATION RIGHT

Think of building your savings like putting on make-up: you need to start with a good foundation. That means having protections in place. I always recommend having an emergency cash stash equivalent to three months’ expenses set aside to cover any unexpected costs or should you lose your job.

Similarly, income protection insurance or trauma/critical illness cover can be useful should you fall ill. Sure they count as an initial cost, but having them means you won’t be forced to dip into your savings or sell your assets in a fire sale should disaster strike, so you’ll be ahead in the long-run.

MIND THE STEP

Speaking of income protection insurance, which is tax deductible, did you know that you could be paying more than you need to?

There are generally two types of income protection premiums: level and stepped. Level starts off more expensive but increases slightly over time, whereas stepped increases significantly as you get older. Most people opt for stepped, because it’s cheaper at the outset. But locking it in early can actually save thousands of dollars over your working life – dollars you can put into savings.

CHANGE IT UP

Think about your spending habits before social distancing became 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.

For every workday you’ve been isolated, that’s $49 you haven’t spent. With an average of 20 business days each month, that adds up to $980 per month. But lock in those savings over a full year, and your bank balance swells by $11,760!

TO RENT OR TO BUY?

With interest rates now at historic lows, you may be surprised to find it cheaper to pay down a mortgage of your own instead of renting.

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

But if you have, for example, a $400,000 mortgage with an interest rate of 3.02 per cent pa, 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. Plus, you’d be paying off an asset of your own rather than someone else’s!

GO BIG!

Sometimes spending a bit more at the outset can save you money over the long run. 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.

The same usually applies at scale. A two-bedroom apartment is generally not double the price of a one-bedder. Plus, with a two-bedroom apartment, you have the option to offset your costs by getting a flatmate to pay rent (and contribute to your other bills too). So renting out that second room at, say, $150 a week saves you paying $7,800 a year on your mortgage.

CATCH-UP YOUR SUPERANNUATION

Something I really love is the carry-forward concessional contributions on 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.

It’s particularly great for women who took time off work or reduced their hours while caring for young children, or anyone who was unemployed for a period of time. And the sooner you take advantage of this, the longer your super balance has to grow before you retire. There are some restrictions on this, so it pays to check with your financial adviser first.

KEEP YOUR DEBTS IN CHECK

Just like no person is the same, no debt is the same either. The interest rate on your credit card is probably close to 20 per cent pa. Variable home loans are currently around 3 per cent. The HECS/HELP student loan indexation last financial year was 1.8 per cent.

Given these vast differences, it makes sense to focus on paying down those with the highest interest rate first. By paying them off faster, you’ll save hundreds, even thousands, of dollars on interest repayments, have more cash to put into savings longer term and you’ll be in a much healthier financial position!

This article was originally published in Family Circle magazine