Savings strategies have become a popular topic amongst financial advisors, especially with petrol prices closing in on $10 per litre in some countries, Aussies are starting to take this current inflationary period seriously. Economists at ANZ predict that inflation could go as high as 5% in 2022, and that's bundled in with an equally grim forecast of stagnant wages and higher interest rates. What was anticipated to be a period of growth post-pandemic has skidded to a halt, with rising gas prices leading the way. Economic pressures are exacerbated by the soaring cost of fuel, continuing supply chain disruptions, floods, and the war in Ukraine. The boom times the economy has ridden since the 2008 recession were bound to end eventually. Still, very few analysts and economists thought there would be such a perfect storm of factors contributing to inflation. Even though everything is more expensive, now is the ideal time to rethink your saving strategies so that you can ride out this inflationary wave without getting too wet. Although saving more now seems like a challenge, it's worth it in the long run. Consider this fun fact: implementing the 1% savings method (if you're not familiar with this, learn it immediately—it's simply committing one percent of your salary to an investment account) when you're in your 40s can move your retirement up by two years.Start in your 30s, and you can retire 10 years earlier.Many people find that when they sit down and make an honest budget—the kind that includes apps, subscriptions, and lattes—they do have more disposable income than they initially thought. We share six tactics for winning the savings war below.
1. Consider Essential Debt
Obviously, you're obligated to spend a given amount every month on things like rent, mortgages, loans, and utilities. But there are other, mostly hidden, commitments you have that do add up. If you're shocked to discover that your throwaway spending every month adds up to a thousand dollars or more, you're not alone. But, do the math.- Latte 4X week—$24
- Lunch out 3 X week—$300
- Dinner out with friends once a week—$300 per person
- Blowout, brow wax, pedicure, etc.—$350
- Apps, Streaming, WiFi, etc.—$250
2. Analyse Good And Bad Debt
A critical aspect of safeguarding your financial future is gaining control of your debt and sorting your debt into good and bad debt. Good debt is debt that could significantly boost your net worth or improve your life. This can mean investing in a business venture, property, or education. Bad debt is money borrowed in order to purchase depreciating assets or for the sole purpose of consumption; this can include vehicles, credit cards, or loans with unreasonable interest rates. Calculate your debt-to-income ratio by adding your monthly debt payments and dividing them by your monthly gross income (not just your take-home pay). Anything above 43% is a warning indicator. Talking to a financial advisor can assist you in implementing strategies for reducing debt and interest rates.3. The Three Budget Buckets
We've written recently about how to teach your teens about money and saving, and mentioned the buckets of money for them. It's not a bad strategy for parents to implement, and gives you great leverage over your kids when you can point to your own budgeting priorities. Here are the basic life buckets:- Living expenses: groceries, transportation, health care, and pet costs
- Lifestyle expenses: shopping, entertainment (all those apps and streaming services, too), dining out, travel
- Savings and investment: cash set aside for emergency expenses, additional super contributions, or other investments
4. The 50:30:20 Rule
A more updated approach to budgeting, that doesn't involve hiding cash, is to go by the 50:30:20 Rule. This still has those same three buckets but is clear on how much you should put into each one.- Living expenses: 50%
- Lifestyle: 30%
- Saving and investment: 20%