How to Save $20,000 a Year: Practical Guide for any age
Saving $20,000 in a year might seem like a daunting task, but with a strategic approach and some practical tips, it’s entirely achievable without having to completely change your life and lifestyle. The financial benefits of saving can be obvious – increasing your bank account and watching the numbers go up can be very rewarding, however it is the psychological impacts of setting goals and achieving them which can provide an overall peace of mind and financial security in the long term. Whilst some expenses can be hard to avoid, considering your spending behaviours and overall mindset to managing your finances will have the biggest impact on your long term outcomes.
- Set Clear Goals and Track Your Progress
Before implementing any savings plan, you want to have a clear goal on what you want to achieve. Instead of focusing on the large sum, break it down into smaller, manageable goals. For instance, aim to save approximately $385 each week or $1,667 each month rather than $20,000 in a year. Leverage tools like the Moneysmart Savings Goals Calculator to plan and track your progress.
- Automate Your Savings
The set and forget approach always wins. Set up automatic transfers from your main account to a dedicated savings account. Start with an amount you know you can set aside each week and gradually increase your weekly amount by $10 each month. This “set and forget” method ensures consistent savings without the temptation to spend and by increasing your weekly savings by $10 each month, you can save up to an extra $3,000 p.a. Choose a high-interest savings account to maximise your earnings. Look for accounts with competitive rates and minimal fees.
- Cut Unnecessary Expenses
Every budget needs a good review. Audit your subscriptions and cancel those you rarely use or you have duplicates. This includes streaming services, gym memberships, and magazine subscriptions. Reduce dining out and plan your meals. Cooking at home can save a significant amount of money each month. For example, by reducing how much you spend out each week on dining out by $30, can add up to $1,560 p.a.
- Smart Shopping
Stick to a shopping list to avoid impulse buys. Buy in bulk and take advantage of sales and discounts. Use comparison websites to find the best deals on utilities, insurance, and other recurring expenses. For instance, John compares his car insurance and switches to a provider that saves him $300 annually. He also uses a grocery app to save $20 a week, adding up to $1,040 a year.
- Increase Your Income
Consider taking up a side hustle that fits your skills and interests. This could be freelance work, tutoring, or selling handmade goods online. Declutter your home and sell items you no longer need on platforms like Gumtree or Facebook Marketplace. Selling unused or unwanted items each month can add to your savings account whilst also decluttering your home.
- Reduce Debt
There’s good debt and there’s bad debt. Focus on paying off high-interest and non-deductible debts first, such as credit card balances. This reduces the amount of interest you pay over time, freeing up more money for savings. Consider consolidating your debts into a single loan with a lower interest rate. Michael consolidates his credit card debt into a personal loan with a lower interest rate, saving $500 in interest over the year.
- Mindful Spending
Before making a purchase, ask yourself if it’s a need or a want. Delaying purchases can often lead to better decision-making. Allocate a portion of your budget for leisure activities. This ensures you enjoy life while still meeting your savings goals. Rachel sets a monthly budget of $100 for entertainment. By sticking to this budget, she avoids overspending and saves $1,200 over the year.
- Leverage Technology
You don’t know, what you don’t track. Budgeting apps are a great way to track your spending and identify areas where you can cut back. Apps like Pocketbook and MoneyBrilliant are popular choices for Australians to review their monthly and annual expenditure.
- Plan for the Unexpected
Build an emergency fund to cover unexpected expenses. This prevents you from dipping into your savings when unforeseen costs arise. Ensure you have adequate insurance coverage to protect against major financial setbacks. By setting aside $100 a month into an emergency fund, over a year, you can build a $1,200 emergency fund for unexpected expenses.
- Use your Super Account to Save on Tax
One effective way to boost your savings is by taking advantage of tax benefits through superannuation contributions. Whilst it is not a direct saving in your personal cashflow, it is a tax saving and improvement to your overall financial position. There’s several ways you can contribute to either your or your spouse’s Super to obtain tax or other contribution benefits. Salary sacrifice is a common way to boost your Super savings and reduce your taxable income. As an example, Emma earns $100,000 per year. By salary sacrificing $10,000 into her superannuation, her taxable income is reduced to $90,000. By simply redirecting $10,000 of her pay each year into Super, Emma is saving up to $3,750 of tax due to the concessional tax rate that applies to her account.
- Stay Motivated
Don’t forget the rewards. Celebrate your savings milestones, no matter how big or small. This keeps you motivated and on track. Share your savings goals with a friend or family member who can provide support and encouragement.
By implementing these practical tips and taking advantage of tax-saving strategies, you can make significant strides towards saving $20,000 in a year. Remember, the key is consistency and making small, sustainable changes to your spending habits. Happy saving!
References:
- Australian Taxation Office, “Salary Sacrificing Super”
- Moneysmart, “Savings Goals Calculator”
Disclaimer
This information is of a general nature only and does not take into consideration your objectives, financial situation, or needs. Before acting on this information, you should review the Wealth Maximiser Financial Services Guide and Wealth Maximiser Terms & Conditions and consider this information in light of your own objectives, financial situation, and needs. Wealth Maximiser is operated by NobleOak Services Limited ACN 112 981 718 AFSL 286798.