If you feel like you’re not making headway building personal savings, you’re certainly not alone. Recent research by the Australian Securities and Investments Commission (ASIC) found the average Australian household will spend $69,166 on general living costs this year alone. Yet only 54% of us know exactly what the money is being spent on.  

 

ASIC’s Senior Executive Leader, Financial Literacy Robert Drake, says, “We suspect many households end up misdirecting thousands of dollars each year because they are not keeping track of where their money goes.” As a result, Drake says, “Many people fall into the habit of living pay to pay.”  And that makes it almost impossible to build savings.

 

Even if you aren’t scratching for cash between pay days, it makes good financial sense to have a pool of savings. It provides a source of funds for unexpected bills or emergency expenses, having cash on hand lets you take advantage of investment opportunities, and interest earnings can provide a valuable boost to household income.

 

Nonetheless many of us find it difficult to save on a regular basis. And that’s where a personal budget is an essential tool. A budget shows exactly what you are spending money on – and where you can cut back to free up cash for saving.

 

The thing is, most of us have a reasonable idea of major expenses like annual insurance premiums or monthly home loan repayments but there are plenty of small purchases we make each day. No matter whether it is a few takeaways or a couple of cappuccinos, the cost quickly adds up.

 

Recognising the impact these purchases can have on our budget, ASIC have developed a new ‘Track My Spend’ phone app. It’s another free tool that helps to improve the accuracy of your budget. For more information visit moneysmart.gov.au. If you don’t have a smartphone, use the traditional method of recording your spending for a week or two in a notebook. Either way, a pattern will soon emerge and you can use the numbers to finetune your budget.

 

Once you have a clear idea on how much you can afford to save on a regular basis, the next step is to make a commitment to building savings. The easiest way to do this is by setting up a regular, automatic transfer from your everyday transaction account into a high interest savings account. 

 

Source: Colonial First State, October 2012