loader image

Home > Blog > Savings and budgeting: building wealth and reducing debt

Savings and budgeting: building wealth and reducing debt

Date: 16 March 2016

Establishing a savings plan

Successfully building wealth is a commitment you make to yourself. The best place to start could be to establish a savings plan. The key to successful saving isn’t having lots of money, it is consistency and discipline. Successful savers don’t rely on staying motivated – instead they devise a system to keep their savings plan on track, no matter what.

Many people have their savings deducted directly from their salary and sent to a separate account. If this isn’t possible, consider setting up an automatic transfer from your everyday bank account to your savings account. Schedule it to occur the same day your salary hits your account, so you are not tempted to spend it.

How much you decide to save will depend on your personal goals. Many financial specialists suggest 10% of your income (after tax and superannuation contributions) is a good place to start. If this seems like a lot, think about how much money slips through your fingers every week without you even noticing. For example, consider your daily $3 cup of coffee. Day by day it seems like loose change, but in a year all those coffees cost around $1,000.

Ways to reduce your debt

There are a number of ways to reduce debt, depending on your personal circumstances. Some useful debt management strategies are shown below.

Pay off non-tax deductible debt first

Interest payments on debt used to purchase assets that produce income, such as a loan for an investment property, are generally tax deductible. On the other hand, interest payments on debt such as your home mortgage, credit card or car loan are generally not tax deductible.

If you have both deductible and non-deductible debt, reducing the non-deductible debt first should minimise the after-tax cost of your interest payments. For example, you may choose to make interest only payments on any deductible debt while you pay off the non-deductible debt as fast as possible

Don’t borrow to fund depreciating assets

Ideally, try to avoid going into debt to pay for depreciating items, such as cars and luxury goods. You’ll probably end up paying a lot more than you intended, so before you buy you should consider the total cost of the purchase, including interest repayments.

Pay off high interest credit cards

Interest charged on credit cards is high, so do your best to pay the balance of any credit card debt in full every month. If you have multiple credit cards, you may want to review and consider cancelling them, and then find the cheapest card that suits your needs. Watch out for low interest balance transfer offers as they can have a sting in their tail and many providers introduce much higher interest rates after the promotional period expires.

Always plan for the unexpected

When setting your budget or working out if you can afford a new purchase, check if your debt is manageable by allowing for an interest rate increase on your debt. This builds in a margin to cushion the effect of any sharp increases in interest rates. You should also consider how unforeseen expenses such as major car repairs or a new washing machine would affect your finances.

If you would like to know more about savings and budgeting, talk to your Roberts & Morrow Financial Services adviser who will provide you with more detailed information on the best approach for your situation.

General Advice Warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.

Start today

To discuss with one of our estate planning experts. Start by emailing us at enquiries@rm.net.au

Contact Us +

Know More

NSW First home buyer property tax

NSW First home buyer property tax

From Saturday 12 November 2022 first home buyers can opt in to pay an annual property tax rather than stamp duty when buying their first home. The Bill to introduce this measure has completed its passage through NSW parliament and received assent today [Friday 11...

read more
Are Your Contractors Employees?

Are Your Contractors Employees?

Two landmark cases before the High Court highlighted the problem of identifying whether a worker is an independent contractor or employee for tax and superannuation purposes. Many business owners assume that they will not be responsible for PAYG withholding,...

read more
Succession planning – NSW farming families

Succession planning – NSW farming families

The stamp duty exemption for farms in NSW has recently been broadened and will greatly increase the succession planning options available to families in the rural sector.   The past exemption for transferring farming properties between generations requires the...

read more