The last 12 months has seen huge changes to the way we live our lives due COVID-19 and the associated impacts. There have been lots of changes in the money world too.
A few months ago, money website Canstar published a piece that the average household is saving around $854 a month according to ME Bank, which equates to about $10,250 a year. A lot of individuals (26%) are saving up to 10% of their after tax income each month and 7% of people are saving more than 40%. However, 21% of people aren't saving anything.
Canstar then raised the question of how much should you save? It went on to say:
How much you should save really depends on your circumstances. Things like your employment history, your current debt levels, where you live and your short- and long-term goals and timeframes are some of the factors that could influence this.
There are a number of budgeting models you might like to consider. One well-known model is the '50/30/20 rule', which was popularised by US Senator Elizabeth Warren. According to the rule, you should divide your after tax income into three parts: 50% for needs (like rent, food, utilities and transport), 30% for wants (such as new clothes or dining out) and 20% for your savings or to pay down debt.
How can you improve your savings rate?
Every household's money circumstances are different. Some may have high levels of spending on the basics, whereas others may have a low level of spending. And then there's wide differences when it comes to income as well.
Less than a month ago, Citi shared seven ways that people can reach their savings goals. Earning more and spending less are two of the key factors for people, so Citi shared some of the following tips:
Start a budget
Citi suggested downloading an online budgeting tool, such as the one provided by Moneysmart. Budgeting can lead to opportunities to find ways to improving savings. It can also help you ensure that you don't forget about any particular expenditure that's going to occur.
Separate your rainy day fund from your savings goal
Another point was about ensuring that if you have a savings goal that you create a plan on how to get there. For example, if you plan to go on an annual vacation then a smart way to save could be to split that savings goal into 12 equal monthly amounts throughout the year.
In terms of an emergency fund, Citi suggested that people should have at least three to six months of income set aside.
Could you make extra money?
'Make extra money' may sound like it's easier said than done, particularly in this current uncertain economic environment.
Citi made the point that your existing job could be the main way to increase your earnings through training and boosting your skillset. This could make you the best candidate for a promotion.
There are also plenty of other options to consider such as AirBnB, selling items on eBay or car-sharing on Car Next Door, according to Citi.
Cut wasteful spending
This last tip is about being mindful about spending with money.
Citi pointed out that Aussies spend billions of dollars of things that we don't end up using such as food, clothes, gym memberships and so on. It could be an idea to review these types of spending, whilst ensuring that you get value for money, not just a 'bargain'.
