How to start saving

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Avoid the credit card trap and boost your wealth. Kate de Brito talks to three women about the benefits of saving before you buy.

Stella Eker, 27, works in business development

While her friends were living it up in their early twenties, Stella Eker was busy creating a nest egg. Overseas holidays and dinners took a back seat to saving for her first investment property. Stella, who works in business development for a bank, credits the strong work ethic and saving culture of her Greek parents with encouraging her to save from an early age.

“The thing to do in my culture is save money and buy property rather than go on an overseas trip,” explains Stella. “In my early twenties I was living at home and I was still buying things I needed, but putting a significant amount of money into savings. Now I can see the benefits of saving early rather than starting in your late thirties.”

Stella’s early saving plans have already enabled her to pay off her home in Melbourne’s Templestowe and buy an investment property in Abbotsford with her husband, Ilker, 30. As her income has increased over the years, Stella has continued to maintain a strong saving mindset, even when it comes to small, everyday purchases. Rather than borrow to buy using her credit card, Stella still saves to buy clothes, shoes and big-ticket items.

Each week Stella and Ilker funnel Stella’s entire salary into their mortgage and live off Ilker’s take-home pay of about $800 a week. By charting their weekly expenditure, they worked out they could live on as little as $500 a week. Leftover money accumulates in their bank account and is available to pay for extras such as clothes or evenings out. Whatever they don’t spend is transferred to their mortgage account at the end of the month. In the past, Stella has saved to pay for a major overseas holiday and a sports car. When she’s saving for a specific purpose, the money is transferred directly from their everyday account to a savings account, to avoid the temptation to spend.

By saving rather than going into debt to achieve her goals, Stella believes she’s securing her financial future and creating a nest egg for when she starts her own family. “I’d like to have the freedom to know I can work if I want to rather than have to because we have debt.”

Stella knows many people her age regard saving as a chore. “But the reality is you can’t have it all. If we want something, then we might need to go without something else to get it.

“We tend to cut costs by eating at home rather than eating out. I think that comes from my culture, too. I’ve never thought of eating out more than maybe once a week,” says Stella. “And these days we do a lot of home entertaining. If someone says ‘let’s go out to a restaurant’ and it’s more than we can afford, we’ll suggest they come to our house instead. We rotate between friends’ homes and it is a lot cheaper for everyone.”

Stella also watches her daily costs, including buying lunch when she’s at work. And while she won’t strictly monitor the number of coffees she buys each week, she’s aware that she has to keep an eye on spending in order to save for special items.

“It’s about deciding what’s more important. If it’s a night out at a restaurant that’s going to cost us $40, then we wouldn’t blink. But for more expensive outings we think about whether we want to do it or put that money away and use it towards the cost of a weekend away together instead.”

What the expert says

Katrina Pulbrook, a senior financial planner at ANZ, says budgeting and saving have become unpopular with many cashed-up professionals accustomed to buying what they want, when they want it.

She believes good saving skills are essential to creating a strong financial future, but says many people have lost the ability or never learned to save. “I work with a lot of women who have great jobs and they’re having a great time with their money,” says Katrina. “But ultimately that sort of lifestyle can’t be sustained. At some point the realisation hits home that they will need to look after their future.”

Katrina believes many people incorrectly associate saving with deprivation or with only saving for long-term goals and investments. In reality, saving should be a weekly habit, where money can be built up to pay for everything from a new dress to a holiday of a lifetime.

“Life’s not about living like a king or a queen and having everything you want on tap,” says Katrina. “It’s about thinking about what you want and being realistic. If your salary only stretches to two pairs of shoes, then that’s all you can have. There’s no point thinking you can have five just because you have a credit card.”

Katrina advises clients to live within their base salary and use bonuses as an opportunity for unexpected treats. “The biggest mistake people can make is adding in expected bonuses to their base salary so they think they are earning more money than they
are. People have often spent their bonus before it even arrives by buying things on credit.”

Katrina advises planning ahead for purchases using a ’money jar‘ approach. This allows for debt payments, savings, bill payments and living expenses. The money jar approach means allocating a certain amount of money each pay packet to different expenses, for example petrol and transport, bills, clothes, entertainment and groceries.

Some people set up a number of different linked accounts and have money automatically split into the different accounts. Money for groceries comes out of the grocery account, money for petrol from the transport account and so on.

This is a helpful system for people who often find themselves weighed down by bills the same week each month and then pay nothing for the next three weeks. It also means knowing how long it will take to save for a winter coat or that special handbag using your clothing account.

If the idea of different accounts is too confusing, it’s still possible to save money for less important purchases. Katrina advises paying the essentials first, including food, bills and debt repayments, then saving what’s left over so it’s not frittered away on things you can do without. “This way you might not buy something as soon as you want it – it might take two weeks to buy it instead of immediately, but you still get it,” she says.

Katrina also suggests paying a small amount into bills such as phone, electricity or gas each week or fortnight so you are not left with a lump amount at the end of the month or every three months. Most importantly, she suggests putting an amount into savings each week, even if it’s only $10 to $20. “People say ‘I can’t save; I’m so committed to other things such as paying off debt‘, but you can always find some money to save.”

Consider one savings account for long-term saving, which can be used to fund investments, and another for short-term items, such as a holiday. And use a debit card – top it up weekly with a reasonable amount from your base salary, then you can spend without increasing debt.

Photography: Andrew Lehmann. Hair & make-up: Ruth Sebire.