8 Thrifty Tips To Save
It is never easy cutting back on spending and saving money nevertheless here are my top 8 thrifty tips that can help you gain control of your finances and more importantly secure extra cash in your back pocket.
- Save at the bowser – Before your next visit to the petrol station, use your smart phone to check out the fuel prices on fuelwatch.gov.au. By choosing the servo with the lowest price p/litre can save you over $500 per year. For illustration purposes, below is a screenshot of a search in the Osborne Park and surrounding area. Based on a 60L tank of fuel, if you filled up at Better Choice instead of Caltex Woolworths once a week you would save $530 over the course of a year (assuming these prices remained constant).
- Use a Reward Credit Card – Most lending providers offer Reward Credit Cards that grant you points every time you make eligible purchases. These points can then be redeemed for ‘cold hard cash’ using the Cash Back offer. Points can also be used to purchase products such as flight vouchers, movie tickets, electronics etc. via the online store. Reward Credit Cards generally have a small annual fee however if used sensibly the benefits will more than outweigh the annual fee. Attention needs to be taken when using this strategy as credit card balances need to be paid before the interest-free period (usually 55 days) is over, if not you will be slugged with interest costs sometimes as high as 20%.
- Transfer your credit card balance – If you have racked up substantial credit card debt and are incurring those excessively high interest costs it may be time to transfer your credit card balance to another lending provider. Most of the Big-4 Banks will allow you to transfer your existing balance over to one of their credit cards with an introductory interest-free period of between 6 – 12 months. This can be useful to temporarily ease the pain of those back-pocket-draining interest payments until you get your cash-flow under control. This option should not be used too many times as bouncing between credit-card providers can have a detrimental impact to your credit file.
- Establish an offset account – If you have accumulated savings invested in a savings account, it may be better to invest those funds within an offset account. An offset account is a transaction account that can be linked to your home or investment loan. The credit balance of your transaction account is offset daily against your outstanding loan balance, reducing the interest payable on that loan. This can save you hundreds to thousands of dollars in interest payments throughout the year and cut years off the term of your home loan. Furthermore, earnings within a normal savings account will incur tax at your marginal tax rate whereas there is no additional tax associated with offset accounts. Extra discipline is required when utilising an offset account as funds within the account are easily accessible and the temptation to spend the money can be magnified (especially during the Silly Season).
- Start a kid’s savings account – Children under 18 can earn up to $416 pa of unearned income without paying any tax. For this reason, many parents open up bank accounts for their children to start savings plans for their education. Based on an interest rate of 4% your child can have an account balance up to $10,400 and still pay no tax on the earnings. Be mindful the savings account does not generate more than $416 per financial year, as they will incur 68% tax (including 2% Medicare levy) on any income above this amount.
- Refinance your home loan –Banks have become extremely competitive and focused on continuously increasing their market share. In today’s environment I would suggest seeking the services of a mortgage broker who can conduct the onerous task of shopping around for you to find the lowest rate and most appropriate loan product. Let’s look at an example: assume an existing home loan of $500,000 over 25 years and an interest rate of 5%. If this home loan was refinanced at a lower rate of 4.5% (0.50% discount – and quite easy to find in today’s market) the homeowner would save approx. $43,136 over the life of the loan. Not a bad result if you ask me. If you are not wishing to switch lending providers, try asking your current provider if they are willing to discount your current rate for the sake of retaining you as a customer, what’s the worst that can happen? This approach worked for me.
- Track your income and expenses – Many clients I meet for the first time are on attractive incomes however experience ample difficulty in saving. When I ask them to detail their expenses almost 99% of the time the expenses are under-estimated, not intentionally of course, but due to figures being guestimates. Based on the income and expenses they disclose there should be substantial surplus cash-flow however we find in actual fact they are dissaving (i.e. spending more then they earn). One of the only true ways to overcome this common problem is to accurately track your cash-flow. We use state of the art accounting technology that can accurately track income and expenses. If this interests you speak to us today as we can work with you to demystify your spending habits. Once you are in a position of surplus cash-flow we can then advise on the best ways to utilise your surplus funds to create further wealth.
- Over age 56? – If you are turning 56 this financial year or older then you MUST read on. In the superannuation world the age at which you can start accessing your superannuation is called your ‘preservation’ age. For many years the standard preservation age was 55 however this financial year it has rose to 56 and will rise each year until set at 60. Upon reaching your preservation age you can convert your superannuation into a pre-retirement pension account. The benefit of a pre-retirement pension over a superannuation (accumulation) fund is the investment earnings within a pre-retirement pension account are tax-free, whereas you can incur up to 15% tax on earnings within the accumulation phase of superannuation. In addition, you are able to withdraw a regular income up to 10% each year from a pre-retirement pension (whilst you are still working). Even better, if you are over age 60, the income you withdraw from the pre-retirement pension in most instances is completely tax-free. For those not requiring additional income but want to continue boosting their retirement nest egg they can take advantage of the tax rules by salary sacrificing additional funds into superannuation, essentially swapping taxable income for tax-free money. This is called a ‘transition to retirement’ strategy. If you start planning now you can potentially add tens of thousands of dollars to your end retirement balance. Make sure you receive professional advice to understand if a ‘transition to retirement’ strategy would be appropriate for you.
Matthew Daniells AFP® I Sage Financial Group Financial Planner BCOM (Maj FP & Econ) of Sage Financial Group Pty Ltd (ABN 85 009 388 916) Authorised Representatives of Charter Financial Planning Limited, Australian Financial Services Licensee