Long Term Savings – Let’s Talk About Finances
Some of you may think that I do not have a long-term savings plan. But you’d be wrong! Going on from yesterday’s post, I have been implementing a long-term savings plan since at least 2011, but there’s been trials and tribulations along the way.
One of the key points about saving money is that you don’t spend it! And, it’s very tempting to spend it. In fact, since 2011 I’ve had around about $6000 in my 10% do not touch account. What’s this about ten percent?
Well, a long time ago I read The Richest Man In Babylon parables (of which you can read for free here). One of the lessons that stuck with me was to save at least ten percent of your income regardless of how much you make and make sure that income is used on an investment to make your money work for you (something that will yield more profit in years to come). After all, you cannot compound money if you don’t have any savings.
The problem was… life. More specifically, the influences that I had around me were notoriously bad savers. From family to friends, to social culture, everything around me was telling me to spend. My dad had a common misconception, where if the bank offers you money, say for a house, take it. Who cares about the interest repayments? Just pay the minimum and at least you have a house where you can renovate and make a tidy profit. That may have been good advice in his day regarding houses but it certainly isn’t great advice now. Especially, when he used the same approach to credit cards.
But it’s not only my family but friends and advertising too. Friends are going to that new concert and I should totally come who cares if it is $100 just for the ticket when are am I EVER going to see BAND NAME again? In fact, I stopped going to concerts and festivals in Australia because the price got way to expensive ($300 for Adele anyone?).
To be fair, I didn’t dip into my 10% do not touch account for a concert ticket. I did dip into it when moving house. And we moved a lot. Every time you move house, expect to pay $5000 to move all your shit that you haven’t used. I also, dipped into it when travelling, specifically the most recent Europe trip.
I was a fresh CELTA graduate and was teaching in the autumn in Perth with plans to go to Europe after I had raised enough money. Little did I know that Perth is a summer holiday destination. So by the winter, there was no position available and I had to leave 3 months prior to when I wanted to. What did I do? You guessed it. I dipped into my account.
This time, it’s different. In an earlier blog post, I said I had reached my $10000 savings target. I may have led some of you to believe that this money spare some change is the only money that I have. Quite the contrary. I actually have about double that (not including super) in different savings accounts. Up until last week, I have 4 bank accounts which I use.
- An everyday account (for making transactions).
- An expense account (for bills, groceries and the like).
- A $10000 South East Asia target account (the money I’ll use for my upcoming trip).
- A 10% don’t touch account (the Babylon inspired get rich slowly scheme).
Accounts 2, 3 and 4 are all Netbank Saver accounts earning me interest. However, I looked at the amount of interest I was getting and it was and is currently at 1.05%. Less than inflation (read: losing money). I got quite angry and contacted the bank and asked why it was so low. They said, that’s just the way it is at the moment but I could do something interesting to get more interest.
STOP WHATEVER ELSE YOUR DOING AND READ THIS BIT
If you’re with Commbank and your getting the standard variable rate with your savings, log into your netbank and click the search bar. Type in “Compare and switch account options”. Select any of your Netbank accounts. Click the Specialty Loyalty Offer tab and select the highest option. Boom you’ve just gained a couple of hundred bucks. You’re welcome.
I’m sure other banks have something similar. Whether that’s a honeymoon period on new accounts opened or loyalty offers etc.
How do the accounts all work?
Now you may be wondering how it all works, well let me take you inside my own head and leave you some financial advice you may find very helpful.
*Disclaimer: I am not a financial adviser. Your circumstances will be different from mine. If you need professional advice go see a financial adviser. But if you’re like me and you don’t have a lot of money, I wouldn’t as they are ridiculously expensive or they work for a bank and they’re only advising you on their own products. So they’re not really advisers, they’re salesmen.
So in my everyday account, I normally put $200 in there as this is the amount of cash I take out of the ATM. I tend to use cash more with transactions as it’s been proven that even with Debit MasterCards you’ll end up spending more (I read somewhere that people spend between 6% – 12% more just by using the card over cash. I know you all want a link to this but you have the internet so Google it!).
Why $200? I used to only take out $100 a time but found that was too cumbersome as I always had to take out money from the ATM. I find that $200 will last me between 1-2 weeks. Also when I do use my card, say with grocery shopping, I won’t hit my limit if the grocery bill is over $100 (if you live in Australia you’ll understand).
My expense account is pretty cool, if I may say so myself. I keep around $1000 in there and I use it for any bills or larger ticket things I want (tickets to gigs, clothes, electronics etc. [For those avid readers of my blog you may know that I haven’t bought any new clothes. Thanks for pointing that out, noted and I will get back to you]).
Why don’t I set up Direct Debit? I like to study a bill before I pay it. Especially, with electricity and gas prices in Australia rising quickly it is worth noting how much you pay. Once, I’ve noted how much it is, I’ll pay it immediately to avoid any fees. Also, worth noting is that if you set up direct debit it needs to be attached to a credit card (BAD. Too tempting to spend money that isn’t yours) or put more money in your everyday account (thus not busy earning interest).
The cool thing about the $1000 mark is that whenever the account goes below $1000, I make sure I refill it to at least a thousand on the next pay cycle. It’s super easy to see and you feel a real urge to keep it at or above $1000.
My $10,000 South East Asia target account can essentially be any savings you want to save up for. After you’re done refilling your expense and daily accounts the rest of the money earnt goes into this account. I was averaging about $500 per week going into this account. When I set up the account, however, I calculated I only needed $400 a week to get to my target. But, we are competitive in nature and I also knew my job security was dodgy, so I wanted to smash it.
The 10% don’t touch account. Ten percent of ANY income you receive goes into this account, to begin with. This isn’t after expenses, it’s before. And you know, that when I receive my tax refund ten percent is going into this account. This account is meant to compound and is only used for things that will make you money. I was a bit hesitant in including education as a form that will make you money but now I’m excluding education. Whilst, education is a great way to increase your income in the future, it does not compound and therefore should not be spent on this.
So, going back to my measly 1.05% interest as well as complaining to the bank I decided to invest that money that will give me a better dividend. That’s right I put it in shares that pay dividends and I’ve set that to reinvest. To be clear, this is my first step into the share market and I don’t know what I’m doing, however, I spent $6150 (my 10% money) on bank shares. Why bank shares? Because they’re pretty stable and pay a dividend of around 5%! That’s more than any bank will give you if you park your money there. I have also spent $750 on speculative marijuana shares (ASX:ZLD). However, here’s the important bit, the money that I spent on the speculative shares came out of my expense account and NOT the 10% account and therefore I’m not dipping into the account.
Having said all of this, I am currently down $510, so what do I know?
After my trip and when I decide to settle down into one spot I won’t keep this strategy of saving instead I’m going to change tact but that is for another blog post.
What do you think? Like my savings strategy? Did it help you? Know a little too much about my net worth and are completely regretting reading this post? Let me know! Post a comment here or on Facebook and remember I am looking for people who would like to collaborate. Maybe you want to do a regular post, maybe you want to be interviewed or perhaps you would like to trial making your own blog by writing something on mine. I am all ears!