We all have Golden Rules in life and here are the humble savers favourite rules for creating and maintaining your savings. Sticking to these rules will help you make some real headway with securing your financial future and most importantly, keep you on track even when the going gets tough.
1. Don’t worry about sticking to a budget
Yes, you read it correctly. Budgeting is great and essential, but let’s be serious, very few people know how to draft an accurate budget and even fewer people will actually stick to one and this sees people quickly falling into bad habits. The alternative is simple – Save First, Spend Later. No matter how much you earn make sure you put some aside for your savings and then live on the rest; this way the budget will take care of itself.
Important -Make sure savings are automatically set aside in a separate savings account and you force yourself to live off the balance in your everyday checking account. You need to pay off all your debts at each and every pay cycle, including paying off your credit card balance (not just the interest).
2. Get some professional help
Financial advisors are generally good at pointing people in the right direction by clarifying critical financial goals. They meet people every day to try and solve similar situations and their advice and make the difference to helping you to make a good start. For help in selecting a financial advisor, see also Five Ways to Save – Financial Advisor.
You can also download a Financial Planner One Page Checklist
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We also have a range of calculators in out Calculators page that are designed to provide some further guidance for a range of different individual situations and saving goals.
3. Avoid daily specials
These days anything can be bought by the click of a button or a wave of a credit card. It is important to remember that all of these so called daily specials (whether via the web or at the shops) have been heavily worked through a strong marketing group to stimulate your senses to ‘buy now’. You need to avoid them like the plague.
You should plan your purchases in advance and prioritise by what you really need as opposed to what you want. For larger purchases, make sure you do your own research in advance of seperating with your cash. Good research will help you to not only make sure you buy a quality product but also put you in a strong position to negotiate a lower price.
4. Spend small on depreciating assets (Car and the house)
Most assets we buy will lose money (depreciate) over time. By spending big on such assets you will normally have a nasty surprise a few years after the event. For example, a new car will generally lose around 50% of its value over a three year period. Therefore, a car costing $60,000 is only worth $30,000 three years later, a loss of $10,000 each year. This will be more expensive than the gas/fuel that you used. As the cost of depreciation is not as visible as the cost of the gas/fuel it catches you by surprise and really puts a drain on the household cash-flow.
As for the house, it should be understood that the value of a house is very much weighted to the position that it occupies. The actual construction of the house (both the outside and inside) will depreciate in value and as a result, spending big on the house will invariably to losses not gains. Think of the kitchen and bathroom the two most popular parts of the house that get renovated and a few years later they simply look dated. You have probably heard of people over capitalising on their house, this effectively means investing cash (capital) in renovations for where the house is positioned and this is something you need to avoid.
5. Protect your savings
There is nothing worse than hearing stories of people losing everything when it could have been avoided through taking simple steps to avoid such a catastrophe. We all here about events like floods and storms whereby many people have inadequate or even no insurance. However, more people lose their savings, and for that matter their homes, through sickness and injury which prevent them from earning an income. Whatever you do, make sure you protect your long term assets and that includes you.