Many people make New Year’s resolutions to save money but without a plan, most struggle to get started.  There are countless reasons for failure but they generally include not having a specific target amount, not having a compelling reason for wanting to meet the target and not making enough changes to ensure success.

Some people have a goal of buying a first home and right now in 2021 the conditions for first home buyers are as good as they will likely ever be.  Population growth has dropped to zero, investors have been removed from the market and interest rates are around 2% for many borrowers.

On 12 October 2019, Eliud Kipchoge ran 42.2km in 1 hour 59 minutes and 40 seconds.  He was the first person to run the marathon distance in under 2 hours.  This was the realisation of a goal that was set 3 years prior, and like most plans, it wasn’t without its difficulties and fine tuning along the way. It required 3 attempts and was a huge logistical effort to create the conditions that would maximise success.

You have to approach your savings plan with the same level of dedication if you want to reach your goal.  The first step is to articulate it with specifics that include an amount and a timeframe. Then, tell your friends and family.  If they are supportive of you, it will be easier.

Let’s say your salary is $100,000 and the bank will lend you $585,000 at 90% LVR without Lender’s Mortgage Insurance to purchase a unit for $650,000.  Other expenses to consider are stamp duty and legal fees. First home buyers in NSW are not required to pay stamp duty on an existing home under $650,000, so we can disregard that in this scenario. If we allow $5,000 for legal and other miscellaneous fees, then our total savings goal, including the 5% deposit, will be $70,000 spread over 2 years.

Let’s say you make use of the government’s First Home Super Saver Scheme. It lets you withdraw voluntary contributions from your Superannuation up to $30,000 to go towards the purchase of your first home. These contributions can be made yourself or through a salary sacrifice arrangement with your employer. This leaves you with $85,000 of your annual salary left and a savings target of $20,000 per year.

Your after-tax income will go down to $5,500 per month and you will need to save at least $1,500 per month. These calculations will mean that your new living budget is $4,000 per month.

Cutting back your spending drastically is not easy but there are several big ticket categories that can help. You could also draw inspiration from ‘extreme savers’, although if you’re new to saving, these methods may appear somewhat outlandish but don’t let it distract you from the bigger picture. You can read more about extreme saving here:

The most noticeable things that you can do to help get your expenses down are:

Housing costs:

Rents have crashed due to the loss of tourism and students seeking accommodation.  It should be possible to re-negotiate the rent where you are now or move somewhere cheaper.

If you have a spare room you could rent it out to generate some extra income.

Motor Vehicle

A car can cost more than $10k per year.  Unless you absolutely must have one that is a lot of money that could be going towards your savings.

If you do need a car for work and qualify for work related tax deductions, completing a logbook could be a way to help you reduce the after-tax cost of your vehicle.

Bad Habits to Quit

Smoking, drinking, gambling, online games and other addictions are very expensive hobbies.  Kicking these addictions to the curb can go a long way towards reaching your goal.

Breaking an addiction is definitely not easy, but finding support can make that battle just a bit easier. You can find many free resources available if you’re willing.

Cancel all of your credit cards, Afterpay and any other sources of credit.

Removing any ability to overspend your budget will have a significant impact on how you choose your non-essential expenses. Cancelling these credit sources means you eliminate any possibility of paying interest or fees plus it will result in an improvement to your credit rating.

All you need are 2 savings accounts. One for your living expenses and the other for your savings.

Learn to say no

Family, friendship and fun…these are the three demons you must slay if you are going to save money. Only kidding, although your lifestyle will need to be curtailed somewhat.

Weekends away, going out, buying gifts for others and charity donations will need either a reconsideration or be within your budget. You can’t ambivalently go along with someone else’s plans if it doesn’t fit into your budget. You may have to say no or make alternative plans. Either way, you need to stay in control.

It’s not about restricting your lifestyle so drastically that it is unrecognisable. This is where your savings plan becomes unsustainable. You just need to stick within your plan’s limits.

Change your diet

Eating out, getting takeaway and other expensive food items can no longer be part of your lifestyle.  On one hand, if you only drink tap water and cut out red meat from your diet you could reduce your food bill substantially. You would need to look over your relationship with food and make changes or substitutes to not only fit into your plan but also achievable. If you’re not used to cooking your own meals regularly, it’d be an overwhelming lifestyle change to do so. Find the right balance.

Cancel your subscriptions

If you’re an Apple user like myself, your App Store Account shows all of the subscriptions you have.  Most of them are not expensive, say around $10 per month, but some are a lot more and if you have a few, they can really add up.  Turns out, I had 4 subscriptions: Apple Music, Strava, Duolingo and LinkedIn.  The first 3 were $12 per month but LinkedIn is $70 per month.

Take a look into which subscriptions you’re using regularly and which had free version (if available) that were decent enough for you. Or if you had more entertainment sources than you have time for. Turns out I didn’t really need most of my subscriptions, and I also had both Netflix and Stan so I decided I needed to cancel one of them.

It could help to look into ways around paying full price. I was paying $11.99 per month for Apple Music but if you pay it annually it only costs $119.  Coles & Woolworths periodically sell Apple gift cards at a 15% discount so I bought a gift card and paid the annual subscription. It all adds up to a 30% saving on the monthly price. Sure it’s only $40, but all of these micro decisions can add up to a substantial amount if you make them consistently.

Supermarket Specials

Speaking of Coles & Woolworths, they have regular discounts on most items, sometimes at 30-50%.  If you wait to buy non-perishable items (e.g. dishwashing detergent etc.) when they are on sale you can consistently save 20% on your grocery bills.

Track your spending

Using EFTPOS to pay for your expenses allows you to download your transactions into an excel spreadsheet. From there, you can sort your expenses into categories and essentially, keep track of where you spend your money.

By calculating how much you need to spend on non-discretionary items you can then calculate how much is available for discretionary spending. Giving you a much clearer idea of which areas need trimming so you can stick to your budget and reach your savings goal.

At the end of the day, a goal without a plan is just a wish. If you need any help setting up a financial plan, please reach out.

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