Tuesday, January 12, 2010

The Student Guide - Six Steps to Start Saving

Happy Monday has been put on indefinite hold (mostly because other than an amazing NYE, I've done very little other than work, or bus between Geelong & Lorne looking at houses), but after a week of relative mental downtime, I'm back on track, with a new segment – Tight-Ass Tuesday.

As a uni student, or anyone in the low income bracket, you quickly learn how to do things on a shoestring budget. Unfortunately, this can make saving for things you actually want incredibly difficult. A trip overseas, a new car, the bond for your dream apartment, or even a wardrobe makeover, you find yourself trying to put money away, but never getting any closer. Today, I'm going to try to help you get a head-start on your savings, and hopefully help you help them grow! Bit of a disclaimer – Please don't take this advice in lieu of that of a financial advisor. This is just common sense stuff, from my own experience. It may not work for all of my readers, nor do I recommend following this advice if it will place you in a difficult financial position. Use the brain the goddess gave you!

Find a good savings account – A bad savings account can kill your hopes before you've even made it out the door. What you are looking for is an account with no minimum balance, no minimum monthly deposits, low fees, no penalties for withdrawals, and that pays interest. Things happen, and sometimes you have to withdraw your savins, or move them around, and sometimes you need to use ALL of it. If this happens, you really don't want to get penalised for it. If you can prove you're a student, a lot of banks and credit unions will charge you lower fees on your accounts, or sometimes remove them altogether. Be careful when you are looking at different accounts, and make sure there are no hidden fees.

I have an ANZ Online Saver account in addition to my every day account. You can only access your funds online, which means you can't accidentally withdraw the lot from an ATM on a drunken bender, but it only takes 30 seconds online to make them accessible. There is no minimum balance, unlimited transactions, and you don't have to put in a minimum amount per month in order to earn interest. Even better? No fees, ever. At the moment it's earning 4% interest p.a., which is actually more than some of their savings accounts with strings attached. Commonwealth Netbank Saver, NAB iSaver and Westpac eSaver are all very similar to the ANZ account, though with lower interest rates of around 3.5% p.a. Some of the banks also have introductory offers of higher rates attached, but be careful to read the fine print, sometimes they only last a month or two, and suddenly you find yourself lumped with a bunch of fees, or a lower interest rate. Talk to your financial institution (or others if you're not satisfied), and figure out which account suits you best!

Regular additions – Once you've set up an account, and filled out all that paperwork, it's time to start saving! If you can, set up a regular transfer from your every day account into your savings account, be it $10 or $100 a fortnight. You can usually set this up to be an automatic transfer, so you don't even have to think about doing it. If you're like me, and aren't always sure what financial hurdle the fortnight between pays will bring, try transferring the majority of what is left in your every day account into your savings account the day before your next pay is due. Some weeks it might not be a lot, some weeks it might be heaps, but either way, it's money going towards your savings! Also think of it this way – the money sitting in your every day account might be easily accessible, but it's probably not earning any interest! Make that money work for you, even if a few days later you have to transfer it back into your every day account!

One off bonuses – Do you get a scholarship that comes in a lump sum every semester? Did your giddy Aunt Lola give you an awesome birthday gift of pretty plastic notes? Tax return burning a hole in your pocket? Deposit the lot into your savings account! You probably have a couple of things that were urgently awaiting that windfall, and if so, sort them out, but anything left over, try to put away. It's ok to have a bit of a splurge when a large amount of money lands in your account, but try not to go overboard. If you're tempted, try to think of all the things you have to pay for in the next three months, and if your usual income will cover it if you spend your current bonus. The majority of the time, my scholarships had to go toward rent, food and textbooks, but if I could get away with it, the majority always got dumped into the savings account for at least two weeks, because other than the warm fuzzy feeling you get from having a healthy looking bank account, it was money working for me for a change!

Watch your spending – Keep an eye on what you're transferring money out of your account to pay for. Is it an everyday expense, a big night out, or because you're not going to have net for a while, and want to make sure you have the money available if you need it? Spend as you normally would, but try to notice patterns in your spending. Is there something that is cropping up a lot that is taking a big chunk out of your savings? If so, is it something you can curb? When I first started trying to save, I noticed that I would take $20 out of my account, and spend it on random stuff. Stopped carrying around cash, miraculously the random buys occurred less frequently. I also stopped eating so much crap food, but that's a subject for another post!

Small rewards – Just because you're trying to save doesn't mean you can't occasionally reward yourself for your efforts. Set yourself a milestone, say $500. If you reach that amount, do something special that isn't going to erase all that hard work – have your nails done, go out to dinner, or to a movie, something that you would normally refrain from because of the cost. It might seem counter intuitive, spending your hard-saved dollars, but it is a positive reinforcement – you did the right thing, you saved the money, and you've acknowledging it through a positive action. Don't forget to set your next goal though, or you might be tempted to spend the lot!

Setbacks – It doesn't matter how hard you save, setbacks can and will happen. Medical emergencies, car problems, unexpected travel, Christmas, there will always be times where you have to spend money in a way you had not originally planned, and it can cause a massive upset to your savings account. Don't stress, it's only money, and if you've gotten there once, you can do it again. Just take a breath, look at what steps you took worked, what didn't, and start again.

With these sensible tips in hand, hopefully your savings shall grow! It takes time, and willpower, but if you want it, you can get there!

How about you folks? Any good experiences with a particular type of savings account? What are your top tips for squirreling money away?