5 New Year money habits Top tips to reinvent your spending

HIT REFRESH ON YOUR FINANCES WITH THESE SAVVY TIPS FOR SAVING AND BUILDING WEALTH FROM EFFIE ZAHOS, AUTHOR OF A REAL GIRL’S GUIDE TO MONEY

CHECK THE FEES YOU PAY IN YOUR SUPER ACCOUNT. IF YOUR FUND IS AT THE HIGH END, IT COULD BE WORTH SWITCHING

1

USE THE 48-HOUR RULE

Have you ever succumbed to temptation and purchased something without considering the consequences? If the answer is yes, you’re not alone. In 2021, put an end to impulse buying by vowing to follow the 48-hour rule. The rule dictates that you wait 48 hours before you make any purchasing decision. During this time, ask yourself these questions:

DO I NEED IT? YES/NO. If yes, can I borrow it from somebody else?

If no, can I rent it? If no, can I buy it second-hand? If it’s no to all of these, then by all means go ahead and buy it.

TIP: Set up a ‘fun money’ account. Every time you follow the 48-hour rule, put the money that you were going to spend into this account. If after 48 hours you don’t buy the item, keep the money in this account. At the end of the year, check the balance of this account. You’ll then have the choice to either spend this money on something you really need, or keep on saving. You’ll be surprised how much joy this account will give you.

2

INVEST REGULARLY

What’s so exciting about investing is that even small amounts can make a big difference to your wealth over time. It’s all thanks to the magic of compounding returns. Let’s say, for example, you invest $2000 into an investment earning 6.5% annually (a standard return over the long-term in the share market*) and you can afford to back it up by adding $100 to the same investment every month. After 10 years, your total investment would be worth just over $20,000. At this stage your regular deposits would total $12,000 and your total interest would be a tad over $6000. Not bad, but as it hums along a little longer, you’ll reach a point where your wealth skyrockets as the returns on your investment become greater than your regular deposits. Expect to see that in year 19, for example, when your investment hits $48,594, of which regular deposits make up $22,800 and interest totals $23,794.

TIP: Start small. Micro-investing apps such as CommSec Pocket or Raiz are a great way to build up confidence in investing in the sharemarket without needing large sums of money. Keep an eye on the fees, though. The smaller your balance, the bigger the impact fees can have.

3

SET UP A CASH CUSHION

How long could you survive if you lost your job? If the answer is until your next pay, then you seriously need to work on building up a cash cushion. A cash cushion is strictly for emergencies only; think loss of job, medical crisis or an unexpected financial curveball. The idea is that you have enough money in your cushion account to not only handle the crisis but, in the event of a job loss, cover your absolute essentials (food, shelter, clothing… designer shoes don’t count) until you find a job again. At the very least, you should aim to have a few thousand dollars in there, but most experts recommend having between three and six months’ worth of expenses stashed away.

TIP: It can take a while to build up a cushion account, and if you have a mortgage it may pay to keep your savings there. Let’s say, for example, you have a $400,000 mortgage at 3.37% and you can afford to save $50 per week. By popping this into your home loan’s redraw or offset facility, you’ll not only have $36,000 in the account after 15 years. According to analysis by financial comparison website Canstar, you’ll save around $10,700 in interest on your home loan.

4

BEGIN WITH THE END IN MIND

If you were born in 1970, your super balance should be near $271,000 if you hope to be on track for a ‘comfortable’ retirement as defined by The Association of Superannuation Funds of Australia (ASFA).

If you were born in 1980, your super balance should be close to $154,000. How much super do you have? Some quick ways to play catch-up include knowing the fund fees you’re paying. Super funds charge a variety of fees – some are set as a percentage of your balance, others are based on a fixed dollar amount. On average, fees work out to between 0.94% and 1.28% of your account balance annually, but you could pay as much as 2.73%. Check the fees you pay. If your fund is at the high end of the scale, it could be worth switching to a less expensive fund with a solid performance.

TIP: Use the calculator at superguru.com.au/calculators/ super-detective to work out whether you’re on track or have some catching up to do.

5

PAY ATTENTION TO UNIT PRICE

One way to cut the cost of your groceries is to understand how unit pricing works. Most supermarkets and large grocery stores are required to display unit pricing. According to the Australian Competition and Consumer Commission (ACCC), you should find unit prices on in-store shelf price labels and promotional signs, online listings, and in newspaper and catalogue advertisements. You can use unit pricing to work out if you’re better off buying the bigger or smaller item of a particular product, or look at special offers to see if they do have the lowest unit price. The ACCC offers this example: – Laundry detergent X costs $7.62 for a 2.5-litre bottle. Its unit price is $3.05 per litre.

– Laundry detergent Y costs $5.74 for a 1.5-litre bottle. Its unit price is $3.83 per litre.

– Therefore, the cheapest product is laundry detergent X.

QUT (Queensland University of Technology) research states it’s possible to slash $1700 off your annual grocery bill just by using unit pricing.

TIP: When shopping for groceries online, change the filters to order products from lowest to highest in unit prices. Both Woolworths and Coles offer this feature.

Finance commentator Effie Zahos is Editor-at-Large at financial comparison site Canstar and the author of

A Real Girl’s Guide To Money

(Are Media).