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It’s Not What You Earn But What You Save

It’s easy to think that a large salary or windfall is necessary to accumulate substantial savings. However, many people who earn large salaries reach retirement with little to show for all the income they have earned over the years.

People on average incomes can and do save very successfully to make their money work harder. Indeed, it is often people on average incomes who have learnt the discipline to save. Over time, those savings can become a sizeable amount.

To get your savings working harder for you, you could:

  1.  Take a hard look at your bills, to see how you have been spending your money and where you can cut down!

  2.  Identify your medium to longer term personal financial goals.

  3.  Make a realistic but firm budget to help you work out your savings capacity.

  4.  Determine an amount that you could set aside each month for your future benefit.

It is harder to save during some stages of life than others, such as when you have debts like a mortgage to pay, but as a guide, you should aim to save 10% of your net income.

For example, on a salary of $30,000 pa, saving 10% or your after-tax income is just $227.00 per month. Earning 7% pa*, your monthly $227.00 will grow to $15,350 after 5 years and $34,860 after 10 years.

For many, the key to effective saving is to pay yourself first. Have a portion of your salary paid into a separate account, or have the money direct-debited from your account into a separate savings account or a managed fund. If you don’t see it, you shouldn’t miss it as much.

* Assumes compound investment return of 7% pa net of fees, charges and expenses. Example used is for illustrative purposes only.

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