MonoMoney » Saving

It Is Simple – You Either Earn More Or Spend Less

Russ — Thu, 08 Jul 2010 22:30:56 +0000

There are only two ways of saving more than you are now: either you earn more money or you spend less money.

There are two ways of being happy. We may either diminish our wants, or augment our means – either will do – the result is the same. It is for each man to decide for himself, and then do that which happens to be easiest. -Benjamin Franklin

Earn More

This is the harder of the two ways but it can be the more beneficial. Earning more involves increasing your income either through investments or good old fashioned hard work.

The main ways to earn more are to work more or get paid more for the work you do. The latter includes changing your work through a promotion or getting a higher-paid job.

Working Overtime
A lot of businesses offer their employees overtime. This is a very popular way to earn more money than you would normally receive. Some people even rely on overtime to off-set a low income.

Getting A Second Job
You could get a second job. This could include a night job or something extra on the weekends – basically anything that falls outside you current work. This isn’t recommended over the long term as you could easily wear yourself out, but if you are looking at paying off debt quickly or need to save in a hurry, then this could be a good short-term solution.

Pay Rise
With this strategy you try and get more money for the work you already do. Either by working harder or better or both so that your employer will pay you more. Depending on the job you have this could be challenging.

Get A Promotion
This is usually accompanied by a higher wage and while it would not suit everyone, a lot of people strive for this in their current jobs.

Getting a Better Job
Whether through getting a higher education or gaining more or different skills, this can be a great way to increase your income. Looking around for a better-paying and more fullfilling job could be just the thing you need.

Starting A Small Business
Starting a small business from home is a great way to earn extra income. This can be as small or as complex as you make it, and can even lead to you quitting your day job.

Spend Less

This is the easiest of the two ways to save more, and the road most people take when they are trying to save. You simply decrease the amount of money you spend.

Cut Back On Expenses
Going shopping less often, heading out on the town less fequently, curbing your frivilous spending – all of these will cut the amount of money you spend and allow you to save more.

Slash Your Bills
Reducing your bills can be a great way of finding extra cash. From turning off lights and using your air conditioner sparingly during summer to cutting back on cable television and your mobile phone plan, there are a myriad of ways you can save money on bills. You just need to look for them.

Eat Better
Cooking your own food and eating out less will not only save you money it will make you healthier as well. Reduce eating out to a special treat and learn to cook simple yet healthy meals at home from basic ingedients and save a heap on your food bill.

Don’t Keep Up With The Jonses
Living within your means and wanting less is a great way to save money because it means that you will be less likely to buy the latest fad product or try and out-do your peers. Be content with what you have and focus on quality over quantity.

Live Simply
Don’t over-commit yourself financially and live a simple yet extraordinary life. Favour experiences over things and be mindful of the difference between a want and a need.

Remember that there are only two basic ways you can save more, but a myriad of ways you can do each one. So experiment with them and try and find the perfect balance for you.

Have you found your perfect balance?

Image Credit: Cimexus, Robert S. Donovan

Author Info
This article was written by Russ – the founder of MonoMoney.com and total geek. Feel free to contact him via this website and let him know how well he is doing. Or just leave a comment below.

Hype – Stay Away And Save Money

Russ — Tue, 06 Jul 2010 22:30:06 +0000

Ah Hype. That wonderful, exciting, super-charged stuff that makes us buy whatever it’s being applied to. Well, I’ll let you in on a little secret:

Hype is almost always a bad thing.

The Problem
The problem with hype is that it makes us buy on an emotional level instead of a rational one, which is never a good idea as you will eventually come back down to earth and realise that you have made a mistake (also known as Buyer’s Remorse). But by then it’s all too late and you have spent the money on something that you could of done without.

Resisting Hype
The hardest part of resisting hype is taking back control of your senses. What you need to do is stop and take a breather before you dive right in and part with your money.

Ask yourself a couple of rational questions like “Do I really need this?” or “I was happy yesterday without it, will I be happy tomorrow without it?” And you need to remove yourself from the hype for a while. Tune out from it and give yourself some time to chill.

Why Should I Avoid Hype?
Here are the top five reasons to stay away from anything that is hyped:

It probably isn’t that good anyway (if it was that good they wouldn’t need to hype it)
It will cost you a lot more than you wanted to spend
You most likely don’t need it (after all your life was perfectly fine before you heard about said product or service)
Your decision to buy is due to emotions rather than rational thought (which is never a good idea)
You will save money

So before you try and sell your own Grandmother to get a hold of said hyped object, have some quiet time and ask yourself whether you really need it. It will save you a lot more than just money.

Image Credit: stallio

The Power of A Dollar

Russ — Sun, 04 Jul 2010 22:30:35 +0000

This is something Warren Buffet understood from a very young age and has kept with him ever since.

That is, the power of every dollar you have and how much it is truly worth to you. And, as a consequence, why you should spend as little of it as possible now, as it will be worth so much more in the future.

For clarity sake, let’s start with an example.

How Much Is A Dollar Worth Today?
Not much. After all, you cannot buy much with a dollar these days. Not even a chocolate bar or a can of Coke. So, why should you care that much about one measly dollar?

Now, what if I told you that if you gave me that dollar then I would, in 20 years, give you back much much more than what it is worth today. Some of you would be thinking that given inflation, it would be worth even less than it is today. But you would be wrong.

What A Dollar Will Be Worth Later
In 20 years that one dollar, if you are smart, would be worth a lot more than it is today. Even in a simple bank account, it would be worth $2.40 (assuming a 5% pa interest rate). But that is being overly conservative.

If you invested that one dollar, along with other one dollars you saved or collected, you could make a lot more than that over 20 years. If you look at the long-term growth of the share market in Australia over the last 100 years, real returns after inflation for Australian shares listed on the stock exchange have averaged around 7.5% per year.

So, that one dollar, invested in the share market over those 20 years, would now be worth $4.30.

So, why would you spend that one dollar now when it could be worth $4.30 in the future? If you look at money in this way, you will realise the power of saving it now for future benefit.

Using This Knowledge
A more practical way of looking at it is the future cost of things that you buy. So, that can of Coke that costs you $2 now, is actually costing you $8.60 in future dollars (or F$). Ouch! That’s an expensive can of Coke!

How about that dress you spotted in a sale that you don’t really need but decided to buy anyway? What was it on sale for? That’s right, it was half price, down from $99.99 to $49.95. A real bargain! Not quite.

Not only would you not be saving any money, you would be spending $49.95 you weren’t expecting to when you left the house that morning, or as you should be looking at it, F$215.05 (a 430% increase over current value). Not really a bargain after all, is it?

Your Future Self
So if your future self could come back through time, 20 years from the future, and tell you not to spend that $49.95 on a dress that she cannot even remember owning, because that money would be worth so much more to her then, what would you tell her?

What would you tell her? And does this mean much to you right now?

If you want a quick way of calculating this when out and about or when you are tempted to spend money on something frivolous, then simple multiply the cost of what you want to purchase by 4.5 or, if you are not that good at maths, an even 5. This will give you a rough idea about how much that money is really worth to you in $F.

Image Credit: Claire L. Evans

Rule of 72 – Double Your Money

Russ — Sat, 03 Jul 2010 22:30:56 +0000

This rule is a handy one to know when investing.

While a lot of online calculators already have this inputted into their calculations and it would be an easy matter for you to use them instead, it is handy to know how to do it yourself, and it is pretty easy anyway.

What is the Rule of 72?
It’s simply a rule for calculating when an investment doubles. Assuming you add nothing more to an initial investment, this rule will tell you, based on the interest rate used, when that investment will double in value, in years.

Please note that the rule assumes that you are using compounding interest and not simple interest, but I would say every savings account and investments uses compounding interest these days so it is a safe bet that yours does too.

The Formula
Calculating this rule is pretty easy, you simply divide 72 by the interest rate (given as a percentage).

To give a simple example, say you had $100 in an online bank account at 4.5% (assuming the interest rate stayed the same over that time – I said it was a simple example) it would take approximately 16 years for that money to become $200.

72 Isn’t Accurate
Now, I say approximately because the Rule of 72 isn’t all that accurate. It’s close but not exact. The Rule of 69 is a lot more accurate, but 72 divides into a lot more numbers cleanly than does 69, which is why it is used; and for small or approximate calculations it works just fine. So feel free to substitute 69 for 72 when doing this calculation.

If you want to be even more exact, use the number 69.3 – as that is even more accurate than 69.

To use our example above with the more accurate number of 69.3, we get a more accurate answer of 15.4 years, or 15 years and 146 days.

As you can probably tell, for this calculation it doesn’t really matter what the amount of money invested is. It will work with any amount at all.

Image Credit: stuartpilbrow

Keeping Track Of Your Money

Russ — Fri, 02 Jul 2010 22:30:19 +0000

It seems like you never have enough money. You get to the end of the week (or fortnight or month) and you are hanging out to get paid again.

I think most of us are living from pay-to-pay or have done so at some point in the past. I know I have.

We try not too, but mortgage, rent, bills, school payments, rates – they all seem to come up just when we least want them to. And that leaves us relying on credit or eating like a pouper until the next pay day.

There is a way out of this though and that is through budgeting. Budgeting is important because it allows you to see where your money is going and control what goes where.

I will not go into budgets in this post however, instead I will let you know about one thing you can do to make your budget a little better and save money at the same time.

Tracking Your Spending Habits
To create a great budget that suits you, you need to know your spending habits. There is no point budgeting $50 on food per week if you spend twice that, or putting aside $100 for the car payment when it is $120 – it’s not accurate and it will leave you short.

To really get to know your spending habits you need to keep track of them.

I can hear the groans from here. Okay, you don’t have to do this forever (unless you want to), but you will need to do it for at least 2 weeks. I did this for 3 weeks and it showed me exactly where I was bleeding cash, allowing me to plug the hole and save much more.

The Easiest Way
There are a few different ways you can keep track of what you spend but I find the easiest way for me is to keep pen and paper with me everywhere I go and write down what I spend money on each time I spend it. Keeping this in your wallet or purse is a good idea.

Other Ways
Other ways of keeping track of your purchases is by keeping all your receipts, using Excel or similar spreadsheets, or using online software.

Be Accurate
Which ever way you choose to keep track of what you spend you need to be as accuarate as you possibly can. Write down everything you spend money on. Even if it is $2 to a charity money collector on the street. It all adds up.

At The End
At the end of the two weeks (or whatever period you choose for yourself) collect all your data together and total it up. If you are anything like me, you may be more than a little shocked at how much money you truly spend.

Categorize
Next, create categories for what you spent money on. These can be whatever you like but the more detailed they are the more you will get out of this exercise. But try not to obsess over this, as there is no right or wrong answer.

Example Categories: Groceries, Petrol, Coffees, Lunches, Electricity, Travel, Rent, Random Food Items, Toll Fees, Bank Charges, Club Memberships, Donations, Work Function. These are just a few of the myriad of categories you could have.

Write your categories down and then place each item and the cost under one of these categories. Then total them up. You will start to see a pattern emerging pretty quickly of where you spend most of your money.

When I did this, my biggest spend by far was on food. So I cut back and stopped spending as much as I had been. I was surprised by how much I saved once I did this.

Once you have done this you will be in a better place to draw up a budget and know where you can easily cut back and save some extra money.

It might be a good idea to do this every so often as we can all easily fall back into bad habits from time to time.

Have you ever tracked what you spend your money on?

Image Credit: woodleywonderworks

Online Accounts and the Best Bank Account

Russ — Wed, 30 Jun 2010 22:30:17 +0000

Over the last five years in Australia online bank accounts have become a popular way for many people to save money.

While access to these online accounts is restricted in many ways compared to traditional transaction accounts, the popularity of internet banking and phone banking has made these online accounts both useful and convenient for a great many people, not to mention it is a great place to park un-used funds or to save for what your want.

What Is An Online Savings Account?
Like more traditional term deposits, an online account earns a high rate of interest, but unlike a term deposit, there is no fixed investment term and you can withdraw your money any time you like.

Growth Of Online Savings Accounts
Since the inception of online bank accounts into mainstream Australia, every bank has been falling over themselves to give better and better interest rates to entice customers to deposit their money with them – offering higher promotional rates for the first few months or offering an even higher rate with high minimum balances.

This overwhelming popularity has even lead to the creation of online-only banks (INGDirect being the most well-known of these) to cater for investors and net-savvy customers who like the idea of doing all their banking online. These banks don’t have brick-and-mortar stores you can walk into and so access to the funds you have with them is via internet banking only.

Choosing An Online Bank Account
With the abundance of choice that is around currently it can be hard to choose the best online bank account for you. While it looks daunting, most of them are basically the same – they all offer high interest rates and all are only accessible via online or phone banking. Where they differ the most are the conditions they have attached to them – some have many, while others have none at all.

Be Careful Of Hidden Conditions
For my money, it is best to stay with those online accounts that contain few or no conditions, as they offer similar competitive rates combined with the peace of mind that comes with not having to worry about whether you have jumped through all their hoops.

The most common conditions are based around bonus interest rates, giving you a higher rate if you successfully meet them. But these can be confusing for a lot of people and generally if you don’t meet the conditions you forfeit the bonus interest for that month (usually earning you less than you would of earned with a bank account with no conditions).

If you love being an active participant in your money and you have the time and effort to devote to checking your accounts weekly then by all means look into the bank accounts that offer you bonus interest, but if you are like me and want a more minimal, hands-off approach to your money and investments, then have a look at the bank accounts below for a great selection from some of the most well-known Australian banks.

Australian Bank Offerings for Online Accounts

Commonwealth Bank
Australia’s largest bank offers up only a single online banking account, called NetBank Saver. Like most online saving accounts it has no fees but needs to be linked to a transaction account.

Westpac Bank
Called the Westpac eSaver, this online savings account must be linked to a regular transaction account but has no fees itself.

ANZ Bank
ANZ has their Online Saver account which like most saving accounts attracts no fees, offers a good interest rate but needs to be tied to a transaction account.

NAB
iSaver is NAB’s online savings account and like most other banks, is free of fees but must be linked to a transaction account.

BankWest
BankWest has an online saving account, called TeleNet Saver and is much like most other bank’s offerings – no fees and must be linked to a regular transaction account.

Suncorp Bank
Suncorp Bank has a few options when it comes to online savings accounts. The first is called a Sub-Account and is attached to your transaction account, is free and offers a competitive interest rate.

The second is called eOptions and is a completely free account which unlike most online savings accounts does not need to be attached to a transaction account, which means it is completely free of any account-keeping fees.

The third option for Suncorp customers is what is called flexiRates. A flexiRate is like a term deposit in that you set a period of time that you lock away your money and are rewarded with a higher interest rate. The advantage of this over a term deposit is that you can choose how long you lock it away. These rates are available with both the eOptions and Sub-Accounts.

St George Bank
Direct Saver is St George’s online savings account and has no account-keeping fees associated with it. What’s more is that you don’t need to have any other St George account attached to it.

Who Is The Best?
Looking at basic interest rates, Suncorp offers the highest rate at 4.75% (as of writing), and also offers the use of flexiRates to earn an even better rate.

If you want to include the bonus rate, then Bankwest wins it at 6.15% for the first 12 months. On the surface this looks pretty good, but you need to link it to a regular transaction account which will cost you a monthly account-keeping fee, and Bankwest seems to have a lot of hidden charges if you do a lot of banking which you may want to look into before signing up.

For a totally fee-free option, Suncorp has their eOptions account with the highest rate of interest and you don’t need to link it to one of their transaction accounts.

NOTE: Suncorp has also recently introduced a new account called the Everyday Basics account which is an everyday transaction account that has no account-keeping fee and gives you access to everything that other transaction accounts do.

So for total account keeping fee-free banking, Suncorp seems to be leading the way.

Do you know of any other great online savings accounts?

Image credit:

My Financial Story

Sales Do Not Save You Money

Russ — Tue, 29 Jun 2010 00:05:04 +0000

We have all seen them – sales. They are ubiquitous, and it seems like they are a constant now. Shops lowering their prices to get us to buy. 25% off. 50% off. 75% off! It never seems to end.

And a lot of people use this as an excuse to head into the shops and buy stuff. After all, the more I spend the more I save, right? Wrong.

Sales do not save you money. They cost you money.

Read that line again. And one more time.

Reasoning
When you head into a shop and buy something that is on sale you are not saving money. You are spending it. Sure, you might not be spending as much as you did if the item was full price, but then again, you would not of bought that item if it was full price – so you have just cost yourself money.

Get it? Let’s illustrate with an example.

Example
Say I walk past a shop that has a sale on – 50% off boots. And say while browsing the store I see a pair of boots that I like. I look at the price tag: marked down from $200 to only $99 – bargain! I hear you say. Well not really. Why? Because if I buy those boots, which I would never of bought if they weren’t on sale, I am spending, or as like to say, giving away, $99.

If you look at it this way you are losing money. Sure, you have a pair of boots, but they will be a pair of boots you didn’t need or want until you walked into the store.

Need vs. Want
‘But what if I needed a pair of boots?’ I hear you ask. Well, that’s a different story. But I bet that most people when they walk into a shop because there is a sale on aren’t there because they need something – they are most likely there because there is a sale on.

Instead of a shop placing up a sign which reads SALE – SAVE 50% it should really read SALE – SPEND 50% LESS. Or, at least, that’s how you should read it.

Do you have a soft spot for sales?

Image Credit: Adam NFK Smith, Lin Pernille ♥ Photography

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My Financial Story

Russ — Mon, 28 Jun 2010 08:30:00 +0000

You Have No Money

All through my late teens and 20s I had thought of money as there to be spent. I got a weekly or fortnightly pay and I spent it – on going out, food, toys, gadgets, stuff I basically didn’t really need but thought I did. I rarely saved any of it. And if I couldn’t afford something with my pay it would be purchased on my credit card, with my only thought being that I will pay that off later (of course I didn’t, not until much later).

It wasn’t until I hit my 30s that I really started thinking about saving money and about more than the instant gratification that comes with buying something. Looking back I wasn’t that much in debt – I had a $2000 credit card debt and a $8000 personal loan. $10,000 isn’t that much by today’s standards but I was renting an apartment, had a go-nowhere job and, although I was self-sufficient, I wanted more out of life.

I started reading some stuff online about budgeting and it was about the same time as personal finance blogs really started taking off online. I dove into those and while they all made sense, it was hard for me to change my negative spending habits. So I struggled with budgets, saving, spending, working out what money would go where and who to pay first. I tried dozens of different budgets but nothing really stuck.

That was when the travel bug caught hold of me. It was late July 2005 that I started thinking about backpacking across the USA. I remember the date as I wanted to head over that same year in September but new almost immediately that I would not be able to afford it.

So, I set the date of September 2006 as the date I would leave for America.

It was only then that everything clicked budget-wise. I started saving a small amount of my pay each week (at the time it seemed like a modest start but it wouldn’t be long before I would realise that I could save a lot more!) From memory I believe it was $50 per week as I was getting paid weekly back then.

I was working for a small self-owned store with four other employees and was getting paid cash each week. The first thing I did was to ask my boss to pay my wage directly into my bank account and then set up an automatic transfer online to another bank account I opened up with INGDirect. At the time INGDirect was the leading provider of high-interest online savings accounts and was not my usual bank, which turned out to be one of its strengths.

So now I had $50 per week automatically going into a savings account which I didn’t see very often and mostly didn’t think about (out of sight, out of mind). I didn’t miss the money and I started to delve into planning my USA trip.

I soon realised however that even though I was going to be backpacking around and staying in hostels, the scope of my travels across the USA would cost a lot more than I originally thought. Not to mention actually getting there and back again (which in 2006 wasn’t as cheap as it is today).

Save More. Spend Less.

So I started to do some rough calculations. I knew how many weeks it was until my trip and guessed at how much I was going to need (I was working on around $5000, including airfares), but the problem was that my $50 per week wasn’t going to be enough.

So I started to save a little more. I increased it to $75, and then to $100. This would of given me the $5000 I needed to get myself over to the USA and to travel around, but something happened to me – I got addicted to saving money!

I remember the moment I realised it. I was crossing the road to my local supermarket to do some food shopping and I started thinking about how I didn’t want to spend too much money so I could save a little more that week.

Bingo! I was well on my way to saving more.

It was a great feeling – knowing I was saving so much and knowing that it was going to get me closer to my goal of travelling. I started to cut back on expenses. I stopped buying so many toys and gadgets, cut back on my food bills (after realising that that was where most of my money was going), and generally tightened the purse strings. It helped a lot that I stopped going out as much as I used to in my 20s and that transport costs dropped to near ero as I started working across the road from where I lived.

I started adding to my automatic savings each week, paying that as a priority first and then paying my bills and living on the rest. Paying yourself first really does work! I can’t remember what percentage of my wage I was saving each week now but it would have been around 40%. That’s a great feeling and it really helped me reach and exceed my goal.

Are You Money Wise?

It wasn’t all roses however. I still had debt, and although I was paying off my credit card and was determined to get that back to zero before I left, I still had my personal loan. I was originally planning on paying that off before I left for overseas, but quickly realised that that wasn’t going to happen. I would either have to pay that off and delay my trip, or just pay the minimum required and go overseas. I chose the latter.

Looking back now that was probably not the most money-wise decision, but it was the one I made and I don’t regret it at all – it allowed me to head overseas, have some great adventures, and meet some amazing people.

I had made the decision that after I came back from overseas I would not move back to Adelaide, where I was living, but instead to Brisbane, where most of my oldest friends were. That was both a good and a bad decision. Good in the long term but terribly hard in the short.

When I got back from the USA I had no job and no place to live, but luckily I had some great friends. I stayed with three different friends over the following weeks as I found a job and moved out to a townhouse in Ferny Grove – the furtherest I had lived from the city (I was used to living close enough to walk to the city).

The first 6 months was a struggle. I was working in a job I didn’t particularly like, was living in a place I couldn’t afford and was struggling financially. The townhouse was two-bedroom so I advertised for a housemate. I was lucky enough to find one pretty quickly and she had moved in within 2 weeks.

With less rent to pay I was in a better situation and I started to pay off accumulated debt and save a little. With that sorted, I started pro-actively looking for a better job and got one in the same company after 12 months of being there. I was in the right place at the right time but if I hadn’t started the ball rolling nothing would of come of it.

Now I was earning more and living comfortably. I started thinking seriously again about my financial position and what I really wanted to do with my life. I started another budget and started paying off my debt. I didn’t do as well as I could of though and while I was in a pretty good position, I was still living pay-to-pay with small amounts of savings but nothing big. And still no investments – which I really wanted.

I started thinking about buying my own place too but that seemed out of reach on one income. Then I met up with and started going out with a girl I knew from many years before and after about 6 months it got to the stage where we were living together and were starting to think about buying a place together.

Luckily for me she already had a good deposit and so after looking around for a few months we bought a house and I am now helping to pay the mortgage.

Which brings me to where I am now.

I am still paying off that personal loan, but I will have paid it off in 12 more weeks. My credit card balance is zero and I am looking at cutting it up and not owning a credit card at all any more.

Once I have finished paying off the personal loan, my partner and I will be heading off for a short holiday (which we will both be paying cash for) and then it will be time to start saving again, and finally investing my money.

So that’s my story up until now. I would love to hear yours as well so feel free to write as much as you want in the comments section below. Or if you want it to be private contact me any time.

Image Credit: Jeff Keen, Martin Kingsley, Strevo.

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