Saving And Managing Your Money

Doom and gloom news stories regarding the recession in the United States and the housing affordability crises in countries such as Australia make the headlines every day. The need for younger people to start off on the right foot with their budgeting and saving skills cannot be over emphasised if they are to grow financially successful in the future. For many adults in the thick of financial hardship today, better saving and budgeting skills can be a matter of survival.

I believe that understanding the importance of saving and managing money is essential if you want to prosper financially. After all, without savings you can’t buy the things you really want in life. The secret to successful saving is to start as early as possible because the earlier you start the better your saving habits will become. Your spending habits play an important role in how much money you will have at the end of each payday. If you assume or adopt a continuous spending attitude or behavior then your chances of saving will obviously be reduced. Most of us work really hard to make a living, so why be reckless with the money you earn? We travel to and from work everyday, we work long hours, we work overtime (sometimes without pay), we spend more time with work peers than our loved ones at home and we are occasionally forced to work with people we don’t like or have anything in common with for years on end. The really important point here is to take care of the money you earn and think twice about what you intend to spend it on. In other words STOP buying junk you don’t need.

Once you have grasped the saving technique the other difficult thing is deciding what to do with your money. How do you invest it and what do you spend it on? Following these simple steps will assist in developing basic financial skills and hopefully soon enough also see your balance steadily grow.

The following points may help to start you off:

• Put away as much money as you can afford each payday in a high interest earning account.
  

When transferring money into a high interest earning account, ensure that you are aware of the interest rate offered by the bank or financial institution based on the amount of money you have to invest. If you don’t have an opening balance and are just starting off, avoid the saving accounts that require a minimum opening balance because these accounts usually offer no interest to begin with. Some banks or financial institutions don’t actually make it clear that interest is only paid once your savings reach a certain dollar value.

A client at work opened a high interest online savings account. She deposited $1500 in the account and left the account dormant for over a year thinking that the high interest rate offered would help her savings grow. She did not check the account because she wanted to avoid the temptation of using the money. But what she didn’t realise was that she required $5000 to start earning interest on that account and 0% was offered on any balance below $5000. Having not read the terms and conditions properly she assumed that she would be receiving over 6% interest on her savings. So this client missed out on approximately $100 because she did not do her homework properly.

• Set up a direct debit so that you don’t forget to allocate money into your savings account each month.
  

Setting up a direct debit is perhaps the easiest way to save money because once you apportion your wage you can forget that the money is even being transferred. It’s just like earning $50 less a week. I can’t tell you the amount of times young clients came into work to set up direct debits with the best intentions in mind but ended up with more fees than savings (due to overdrawing). This was because they spent all their wages for the week and didn’t account for their transfers. So if you are going to set up a direct debit to save money, make sure you keep enough money in the account to cover your transfers. If you do this and remain committed you could end up with approximately $2750 by the end of a calendar year.

• Put the money into an account that pays higher interest than your transaction account.
• Don’t leave the money that you don’t need in a low interest earning account because these accounts earn minimal interest and won’t help your savings grow.

For particular reasons, some people don’t care to inform themselves about higher interest earning accounts. I remember this one client who kept over $100,000 in an account that earned less than 1% interest. He would always ridicule the pittance he received in bank interest but never wanted to do anything about it. The key is to take a little time to inform yourself about what accounts are available and what accounts are suitable to your needs. Even if you want direct access to your money there are accounts out there that cater for these requirements.

• If you don’t need the money, transfer the funds into your savings account straight away, that way you can earn interest immediately. (Remember that the funds are just a phone call away if you need them)
• Look for financial institutions that offer special interest rates for new money deposited.
• If you have managed to save money and find that you don’t need it, consider investing the money in longer term investments like managed funds, shares or property.
• Don’t be afraid to transfer money between financial institutions that offer higher rates of interest. Financial institutions are there to make money and so are you. Commitment and loyalty to one financial institution will not help your money grow.

I has a boss who was a manager for a financial institution. He had worked for the same company for 19 years and felt that he owed the corporation a sense of gratitude because they provided him with employment for so long. He was the type of person that put his job before his family and he did this because he believed that without his job he wouldn’t have been able to afford the things he has today.

To set the scene a little, he was one of those bosses that would really come down heavy on his staff and always used intimidation and reprimand to get what he wanted. He practiced micro-management. In the one year that he was employed he lost 21 staff members alone and almost everyday someone would ring in sick. Reaching his target was number one priority and this was because he wanted to receive his bonus by reaching branch sales at the end of the year. He treated his staff like statistics and not people.

In a morning meeting one day, he asked where all of his staff banked. To his total disbelief, 98% of the staff banked somewhere other than where they worked. He proceeded to tell the staff that he had all his banking with the same financial institution he worked for and he could not believe that his staff would betray the same company that helped put food on their tables at night. This manager had his personal accounts, children’s accounts, home loan, mortgage protection, income protection, company shares, house and contents insurance and car insurance all with the financial institution he worked for. He even had a substantial amount of money in a savings account that offered very minimal interest. This person did not shop around for a deal that would benefit his investments most. I couldn’t believe that someone of his status and expertise would place commitment and loyalty above his own personal income growth, but he believed that he wouldn’t be supporting the business that had employed him since leaving school. I really think that he was somewhat disadvantaged financially because by keeping all of his banking in the one place it didn’t allow him to maximise his potential savings. Therefore my point here is, that keeping your money with one financial institution and displaying a sense of devotion is not going to help your money grow. It is important to maximize your income and staying committed and loyal to one financial institution will not help you do this.

• Receive experienced professional advice.
  

Financial advisers are everywhere these days. They claim that they can help your money grow and will give all sorts of reasons why you should invest in managed funds and not keep your money in short-term savings. I can’t stress enough how important it is that the financial adviser you find is experienced and knows what he or she is talking about. I came across an adviser who was in his mid twenties. He saw a client that had approximately $300,000 to roll over in a superannuation account. This client was intimidating and never gave you a chance to assist him properly because he was rude, sarcastic and always in a hurry. Feeling pressured the adviser put an investment plan together for the client and not knowing any better the client signed the contract and went on his merry way. One year later, when it was time to reassess the plan the financial adviser admitted that he lacked experience to deal with this sort of client. He also said that due to his lack of knowledge, he did not put the best financial plan together for his client and if he had known better at that time he would have advised him differently. The adviser admitted that he was just starting off and lacked experience. He was afraid to do anything for two reasons. One reason being that he did not want to lose a $300,000 sale and the second reason was that he was too afraid to approach the client to tell him that the investment plan he put together for him was not performing at its best, so he did nothing.

Having the right financial planner or financial adviser can really make the difference to the eventual investment outcome. Another particular client came into work and needed to contact his financial planner because he was ready to put a deposit on a house and needed his money. He couldn’t say enough about his financial planner and said that without him he would not be where he was today financially. He was ecstatic with the performance of the investment and the advice he was given.

• Don’t spend your money on useless items. Spend your money on things that you need, not what you want and avoid fads.
  

How many times have you looked in your cupboard and said “What did I buy that for?” The item usually ends up in the corner somewhere never to see daylight again. It has been discarded and is now a worthless piece of rubbish that causes clutter and it totally meaningless and needs to be thrown out. Just remember this piece of junk cost you money and you most likely had to work a day or so to buy it. I’m not saying not to buy anything that gives you satisfaction but if it is going to end up as a useless item that you will never use again then perhaps take the time to reconsider the purchase.

• Remember that a dollar saved today is worth more than a dollar saved tomorrow.

Why should you save?

• You don’t have the stress of thinking that you are living day by day or from one pay cheque to the next.
  
• Having money put aside helps pay for the larger unexpected expenses for example vets bills, housing bonds, housing rates or car insurance.
  
• If you use your savings and not your credit card, you save money on paying back the interest.
  
• Your savings earn interest for you.
  
• If you are the type of person that can wait for goods or services, then you can think beyond the daily expenses for example planning for a holiday.
  
• You can have a savings goal for example putting a deposit on a house.
  
• Saving is the only way to make sure that you can afford to buy the things you want.
  
• You can put money toward your long-term future and look forward to an early retirement.
  
• You don’t have to ask family or friends to lend you money.
  
• You are more proud of yourself for your savings achievements.
  
• You can rest assured that the debt collectors will never be knocking on your door.

Taking the first step to save is often the hardest of all because you never know were to start. I encountered many clients at work who were totally disinterested in saving and managing their finances. As soon as savings was mentioned they would roll their eyes or turn their backs to you, but they were always the first ones back to complain about their impecunious situation and always the first to be applying for credit. I remember asking one client (who was in his mid twenties) if he wanted to open a savings account because he had no savings whatsoever and he answered by saying “the only thing I want to save up for is my next packet of cigarettes”. With this type of attitude there is no chance of ameliorating his financial situation but the sad thing is that he didn’t even care. The key to successfully saving and managing your money is to firstly take an interest, secondly is to take it seriously and thirdly to have a savings or financial goal (something other than cigarettes perhaps). A goal is simply something that someone wants to achieve. Financial goals will often encourage saving because you are aiming towards something you really want. A financial goal can be small to start with and then once you have achieved the smaller goals you can move onto the bigger ones.

Here are a few hints and tips on how to save towards goals.

• Have a plan – A plan gives you guidance as it allows you to determine what you want in order of importance for example: holiday, shares, car, home, retirement. Write everything down and do your sums, so you can estimate how much you can put away into a savings account. Maintain a budget so you can see how your wages are being divided. This will allow you to work out how long it will take you to save. It is important to be honest and realistic.
• Reduce your debt - Make extra repayments on your credit card or personal loan. Lay by or use cash as an alternative to your credit card. Reduce your bank fees by minimising the number of accounts held.
• Reduce your daily expenditure - Is it really necessary to buy snacks for morning tea every day? Reduce your lunch outings and coffee breaks. Not spending $10 per day on morning tea can save you approximately $2000 per annum. This amount of money can be put towards your personal debt.
• Increase your savings - Put as much as you can afford into an inaccessible savings account. If you put away $50 per month in a separate savings account, you’ll have saved $2600 (in principle alone) by the end of the year. Put all your coin in a tin money box, it’s amazing how much you end up with when it has filled up. One client I had put all her gold coin into a money box and by the end of each year she accumulated just over $2000.
• Know your finances - Ensure your transaction accounts always has a credit balance, if you have direct debits make sure that you have enough money in the account to cover the payment, otherwise your bank will charge you overdrawing fees. It is your responsibility to keep on top of your finances and if they are mismanaged the onus is on you to bring them up to date. Also become finically aware. Know what products are available to you and don’t be afraid to change or alter your finances.

This last point is important because it can save you heaps of money in bank fees. I can’t even begin to tell you the amount of clients who were totally oblivious when it came to reconciling and maintaining their accounts. Some people didn’t have a single clue about managing their finances. Three clients come to mind:

Client 1: 

There was one lady that had her car insurance payments taken out on the same day that her x-partner was due to pay in his child support payments. The problem was that her x-partner would always pay in 1 to 2 days late, which resulted in this client getting monthly overdrawing fees when the insurance company tried to take out their monthly payments. She would come in once a month without fail to complain that the bank had charged her fees. I reiterated that she would either have to change the date of her direct debit or request her payment to be on time, but she just did not get it because she always blamed the bank for charging her fees.

Client 2:

This client never had enough money in his account to cover his monthly Christmas hamper club. He was on a government pension and would always be charged fees because of this one direct debit. I explained that he should cancel his direct debit because the fees were actually costing him more than the Christmas hamper club but he said that his family needed the hamper at the end of the year. Due to continuous defaults in payment, I was left wondering if the hamper was ever delivered. 

Client 3:

This client was an elderly lady. Her husband was a doctor who always managed the family finances. He did not include her in any financial decisions at all. One day he fell ill and needed to be placed into a nursing home. The wife had no choice but to manage all the accounts. She would always overdraw the accounts, write bad cheques, transfer money that wasn’t there and tried to use cancelled credit cards, she just could not grasp bank reconciliation at all. 

These clients plus many others would always come into the bank to complain because the bank had charged them fees. But if they had managed their finances more efficiently then all of these situations could have been avoided. Going back to my point about knowing your finances. The onus is on you to know when your payments are due and to ensure that sufficient funds are maintained in the account to cover such payments. Just remember that your financial institution did not go and sign you up for gym membership, cable television or utility services. If you can’t manage direct debits simply cancel them and pay the bill when it is due.

Summary:

Saving and managing your money can be very rewarding especially when you see your goals being achieved. It is very hard work and you may have to sacrifice a few things at the start but it is well worth it in the end especially when you see that nice car parked in the drive way or that LCD TV on your wall. It is also imperative that you know how to manage your finances otherwise you will end up with no savings and lots of penalty fees.