Reach your savings goals

Setting goals  for yourself – whether large or small, short or long-term – is exciting and motivating. Your goal could be as simple as getting organised and putting some money aside for emergencies. Or you may want to go on a holiday, buy a house or car, or afford a comfortable retirement.

Whatever your circumstances, by working out your goals and starting a regular savings plan, you can begin to make your dreams become a reality.

Your savings goals

What do you want from life? Your goals may change at different stages or events in your life. Perhaps you have a short-term goal that you want to achieve in the next year or two, and a long-term goal that could take you 5 or more years to reach.

Think for a moment, then write down some possible goals. Now:

• What is your top priority?
• How much will it cost?
• When would you like to achieve it?

Using the savings plan

1. List your savings goals, such as paying off a debt, going on holiday or buying a home. Work out how much money you need and how long it will take you to save that amount.
2. Write down ways you can save money to put towards your goal. Use a budget planner to see where you could cut back on optional extra things like entertainment, dining out and shopping. Decide how long you will need to cut down on those items to achieve your savings goals.
3. Print out your savings plan and put it on your fridge or somewhere you will see it every day. This will keep you motivated and on track.

Saving for a short-term goal

Short-term goals are things you want to achieve within the next couple of years. These goals could be to pay off your credit card debt, buy a new TV, go on a holiday or buy a car. Whatever you have in mind, set yourself a realistic timeframe.

The best way to save for short-term goals is to reduce your spending on non-essential items, like entertainment, dining out, memberships or subscriptions. It is often easier to stay on top of your spending if you use cash, EFTPOS or a debit card when shopping instead of using your credit card.

Make your savings work for you by putting your money into an account where it will grow. Savings accounts are great because you can earn compound interest on your savings.

If you’re on a low income, you may qualify for one of the savings programs offered by some charitable organisations.

Saving for a long-term goal

Long-term goals are plans you want to achieve in around 5 years or more. This could include buying a home or paying off your mortgage, paying for your children’s education or saving for retirement.

As for short-term goals, look for ways to cut back on your spending in order to boost your savings.

For long-term goals think about investing some of your money. Get some financial advice to work out a good investment strategy to reach your goals.

Money for emergencies

Whatever your goals, it’s a good idea to put some money aside for emergencies. Keep this ‘rainy day’ fund separate to your savings and everyday money. As a guide, aim to save up enough money to cover your expenses for 1 to 3 months. Remember to keep this money for real emergencies and top it up again after you use it.

Saving is easier than you may think. The trick is to start small and start now. Set your goals, create your savings plan and begin to make your dreams a reality.

Paying for your car outright will always be cheaper than buying it on finance or taking out a loan through a bank, but if you do need to take out a loan make sure you shop around. Caryard finance is normally more expensive than getting a loan from a bank, building society, credit union, or other lending company.

Get your savings into gear

Save, save, save

A car may be the first big purchase you make when you are young. You may have few expenses, but not that much money coming in either. This means you need to save as much money as you can in an account where your savings will grow.

Make yourself a savings plan and give yourself a realistic timeframe to save as much as you can to put towards your car. Keep the plan somewhere safe where you can make sure your savings are on track.

Think about opening an online savings account. They offer a high interest rate which compounds, so you can earn interest on the interest and your savings keep growing. It’s also harder to access money in these accounts than other transaction accounts, so you won’t be tempted to use the money for other things.

Nothing is more exciting than getting behind the wheel of your own car. Put a savings plan into gear and get ready to take to the road.

Building your savings

Buying a house is exciting and life-changing. What’s not as much fun is saving for the deposit. But the more money you put down upfront, the less you’ll have to borrow.

There are many ways to save for a home that don’t require major changes to your lifestyle. With a good savings plan and some discipline, you’ll soon have the deposit for your home sweet home.

How much do you need to save?

To get an idea of property prices in the area you want to buy, go to auctions or read the property prices in the newspaper. The property market is always changing so it’s important to know how much you should spend on a property in the area you like.

Work out what you can afford

Work out how much you can afford to spend on a deposit and your mortgage repayments. Use the mortgage calculator to figure out how much your monthly repayments will be. Consider buying a cheaper house if it means your repayments will be easier.

Check your loan to value ratio

In thinking about how much to save, it is helpful to check your loan to value ratio (LVR). This is a percentage that is calculated by dividing the amount of your home loan by the purchase price (or appraised value) of the property you want to buy.

Lenders use your LVR to gauge how risky it would be to give you a loan. In general, the higher your LVR, the higher the risk that you could have difficulty paying off the loan because of borrowing a high percentage of the value of your property.

If your LVR is above 80%, the lender will likely charge you lenders mortgage insurance (LMI). This is a one-off insurance premium to protect the lender should you default on your home loan.

Cut back on the extras

The easiest way to see where you can cut back is by doing a budget. Write down your essential costs, such as rent, bills and food, and subtract this amount from your income (after tax). What is left over is what you could potentially save for your deposit. Try to spend as little as possible on non-essential items and put away all your spare money for the deposit.

Give yourself some leeway – if your budget is too tight, it is harder to reach your target. So don’t cut out all your non-essential expenses. A good idea is to set smaller savings goals along the way and reward yourself when you achieve them.

Moving into the family home

While it may not seem that appealing, many young people choose to move back into the family home while they are saving for their first house. Rent is likely to be one of your biggest expenses, so if you can avoid paying this, you could increase your savings very quickly.

Make the most of what you save

Once you have worked out how much you can save, make your money work for you. If you leave it in your everyday transaction account, you might be tempted to use the cash. You will also earn less interest than you would with other accounts or options:

• Savings accounts: These have a higher interest rate than transaction accounts
• First home saver accounts: These are specifically designed for first home buyers

Investing your savings

Have you thought about investing your savings in shares and term deposits? This is a good idea only if you plan to buy your home in 5 years or more.

Buying a home is a big step and it’s easy to be daunted by the large sums of money involved. With careful budgeting, saving money towards your own home is made much easier.

Preparing for higher education

You want your children to have the best education possible, yet school and university expenses and fees can be costly. The money you spend on your kids’ education could be one of your family’s biggest expenses.

Starting to save early will help your children have a high-quality learning experience.

Work out how much money you need

How much money you need will depend on whether you want your children to go to public or private schools and whether they plan to go to university or college.

For example, if you send two kids to a private high school which costs an average of $20,000 a year for each child, by the time they both graduate you will have spent $240,000 on school fees. And that’s not counting extras such as school uniforms, trips and sporting clinics.

Public schools are much cheaper but there are still extra tuition fees, textbooks, uniforms and school camps to pay for.

The cost of going to university or college can also vary. If your child is eligible for HECS-HELP (a government loan available to tertiary students) they can choose to defer payment of university fees. Even if they don’t pay fees upfront, your child will have to pay for books and materials, union and sports fees and transport costs. Contact the university or college and find out how much each of these things will cost each semester, so you have an idea of how much money you will need to save. For more information about university fees and payment options see studying.

The earlier you start saving for your children’s education, the better. Education costs are usually a long-term goal that can take more than 5 years to achieve. Use the savings goal calculator and work out how much you can save.

Savings options

• Shares
• Managed funds
• Term deposits
• Savings accounts
• Education funds

Before you decide to put your money into any of the saving options above you should consider your other financial obligations. For example, you might be better paying off your mortgage or paying down your debts first, before you start saving.

Education funds

Education funds are special funds to help save for children’s education. If you are considering an education fund you should check the following to make sure these funds fit your long term financial plan.

Here are some questions to ask before you invest in an education fund.

• Fees – What fees will you be charged?
• Contributions – How much do you need to invest and how often do you need to contribute? Can other people, such as grandparents, also contribute?
• Investment options – What investment options are available, and do the suggested timeframes for these options meet the timing of your children’s education needs?
• Fund purchases – What can you use the savings for, for example can you use them for primary, high school or tertiary studies?  Do they cover expenses such as clothing, laptops and excursions?
• Access to funds – What criteria need to be met before you can access your funds? What happens if your circumstances change, and you can no longer contribute to  the fund – do you lose all that you have invested? How difficult it is to withdraw your money if your children’s priorities change? For example, what happens if your children decide they don’t want to do tertiary studies?

You should compare the features of an education fund with other investments such as term deposits and managed funds. In particular compare:

• Product fees, features and benefits
• How the fund is taxed compared to how other investments are taxed

Need assistance?

If you need help with a financial plan to save for your children’s education, or if you need more information about education funds, consider getting financial advice from a qualified financial adviser.  Before you get that advice please watch our video – Financial Advisers – The Facts and The Fiction.

Talk to your children about saving

Let your children know your savings plan. It’s important they understand the benefit of long-term saving. You could even open a savings account and teach them to deposit their pocket money in it.

Education is important but expensive. There are many things you can do now to help secure your children’s educational future.