The Christmas and holiday season are over. You might have had time to look at your bank balance and flinch at the outcome. Don’t worry. All is not lost. You’ve had fun, maybe spent a little too much money but now is the perfect opportunity to embark on a savings plan. So how do you set one up and, more importantly, stick to it?
How To Save Money
Saving money is more than a wish. The way to make your savings work is to have a plan. Start with an annual check. Make a list of your spending habits and assess if you need them or not. To understand how you can cut your spending, you need to work out where you’re spending first.
Start by using your bank app. It will give you an indication of where your expenses are going. If you want a more detailed approach, set up categories and apportion spending, or create a spreadsheet so you can see the full picture.
Add up your total spending overall, and for each category. Do this after tax and see where your expenses are truly adding up.
Pro Tax Tip: Subscriptions add up. Is money still being taken from your account that you haven’t used in six months. Unless the subscriptions are work-related, you won’t be able to claim them as a tax deduction. This provides an instant cash saving without you missing out on a thing.
Be Honest With Yourself
This step may be brutal, but for a budgeting plan to work, you need to be honest with yourself. Are you:
- Living beyond your means
- On the line
- Living within your income
If your expenses are more than your income, it’s time to make some alterations and cut down your spending. Do that immediately. If your outgoings equal your incomings, it’s also time to make some saving adjustments. If you have a healthy gap between your expenses and your income, there still may be ways you can increase that gap.
Expenses vs Incomings
Now you have an itemised list, you need to work out your fixed and variable costs. Fixed costs are expenses that can’t be changed – rent/mortgage, utility bills, insurances, car expenses, food. Whatever you need to live on.
Variable costs are your wants. Subscriptions, eating out, beauty treatments, entertainment, clothes.
Copy and paste your expenses into either column. Add them up. Identifying where you can reduce costs should be clear in this section.
Make Some Changes
If you’ve overspent in your variable costs column, you’ll be able to see clearly where you can trim some fat.
Eating out – how often do you eat out? Do you buy your lunch in instances where you could take a home-made lunch? Should you drink an instant coffee from the tea room and not purchase a barista made coffee? Can you substitute going out with your friends with a Netflix and chill night?
Groceries – are you overbuying food. Can you shop at a cheaper store? Would you work better if you created a weekly menu and stuck to buying items for that. There are many ways to decrease your grocery bill.
Beauty treatments – this can gobble up money as fast as Pacman. Are there treatments you can do at home? Could you do your nails at home and reserve getting them professionally done for important events only? Could you tan at home instead of getting a professional spray tan. Maybe you could have a monthly pamper party – and some fun – with your friends.
50% cut – sometimes the best way to trim your expenses is just to halve them outright. That way you’ll still enjoy doing the things you love – just not as often.
Pro Tax Tip: Check your bank accounts and credit card payments for sneaky fees, charges and taxes that businesses take from you for buying on AfterPay or similar services, or late charges on paying items you’ve already bought.
Fixed costs – You can trim costs here. Every year, it pays to look over your utility suppliers, phone and internet suppliers and insurance companies and look for cheaper deals. A lot of companies offer cheap deals for new customers without passing on the savings to existing customers, or sneak their fees up over time without you even knowing. Companies rely on apathy to increase these costs.
The fixed costs you should look at are:
- Phone – mobile and landline
- Car insurance
- House and content insurance
- Credit cards
- Pay TV and music streaming services
You may potentially save thousand per year by hooking up with new suppliers.
Now that you’ve identified where you can save on expenses, it’s time to look at how to organise your savings. Separate your money into three separate areas:
- Spending / play money
You can even create new bank accounts for each ‘fund’. That way, you know you’ll always be able to cover your costs and can see at a glance how you’re tracking and helps stop you from overspending.
In order to achieve this, you can set up automated, regular transfers into each account and will stop you dipping into unallocated money. You can always add to your spending / play money if you find you’ve over-saved in your expenses fund. Staying in control of your money gives you security and safety for times when cash is needed.
When you work out your expenses, you will also be able to see what expenses you have that are work-related. Most people don’t claim all of their tax deductions that they’re entitled to. The Australian Taxation Office (ATO) won’t approach you with forgotten deductions. Only a tax accountant will go through each and every expense you have to maximise your tax return!
By allocating work-expenses, you can make sure you have your proof for your claim. Keep your receipts and all financial reports to enable you to claim all of your tax deductions. The difference could mean hundreds, if not thousands of dollars. If your expenses have a personal and business portion, you can apportion the businesses costs and claim that amount too.
Chatting with a tax accountant at any time of the year will help you work out where you can save on your tax. The money you can save just might surprise you! Phone 1800 367 487 and chat with a friendly professional today.