Thrifty living is back in vogue

Sydney Morning Herald

Wednesday February 23, 2011

By Lesley Parker

Cut out the small pleasures and watch your savings grow. It's taken a global financial crisis and a run of interest rate rises to scare us into it but it appears Australians are rediscovering the lost art of saving.Statistics on household saving and the use of credit cards bear out what financial advisers say they are starting to see among clients - a greater inclination to build a financial buffer against bad times.The Reserve Bank of Australia's most recent Statement on Monetary Policy, released earlier this month, says the household savings ratio has staged a "significant turnaround" to be at its highest in more than 20 years.The central bank estimates we're now saving about 10 per cent of our disposable income, when in mid-2000 we were spending about 2 per cent more than we earned.Credit card data shows that while card balances are still growing, they're doing so at the slowest pace in more than a year, at just 1.4 per cent in December.Addressing Federal Parliament earlier this month, the governor of the Reserve Bank, Glenn Stevens, welcomed the more "cautious attitude" among consumers but wondered how long it might last.Fear may not be the only catalyst for this change, however. Mortgage Choice's annual survey of consumer sentiment, conducted late last year, found that 36 per cent of respondents thought they'd save more in 2011 because of the economic recovery and improved rates of interest.HOW MUCH?A financial planner for Multiforte, Kate McCallum, says she's "picking up a trend to a greater consciousness around managing cash flow and saving - including among people who earn very good incomes".She says people are starting to say, "we do want to be more careful".Michael Snape, of Federation Financial Services in Canberra, says his advice to younger clients is to make saving a priority. A rule of thumb might be to hive off 10 per cent of your income."If you can save three to six months' worth of living expenses, there's a fringe benefit," Snape says. "You'll be able to substantially lower the premium on your income protection insurance by nominating a longer waiting period.""People give up the wrong stuff," McCallum says. "Decide what's really important to you and you can start to understand the things that potentially you could cut out."She says if you're not a morning person, you may not be prepared to give up your coffee on the way to work. For others, dinners out might be negotiable but private school fees are not.If you spend $100 a week on food or going out, that's $5000 a year to save. Drive to a carpark that's $5 a day cheaper and walk a block or two further and you'll have $1000 more in your pocket.PLUG THE LEAKSStill think you "can't" save? Then consider the results from the Saver Plus program, developed by The Brotherhood of St Laurence and the ANZ to help people on low incomes save no matter how little they earn.Under the 10-month program, participants are asked to set a savings target for education costs such as training courses or a laptop for their child before undertaking a money-management course.Finally, their savings are matched dollar for dollar, up to $500, by the ANZ.The average household income of the people who have gone through the program - about 5000 people so far - is about $675 a week.The Brotherhood's senior manager for financial inclusion, Gerard Brody, says about 85 per cent of participants achieve their goal while on the program and, even better, about 70 per cent continue to save two to three years down the track.What works for them?Participants start by spending a few weeks keeping a spending diary so they know where their money goes."That's when people realise what they think they're spending their money on and what they actually spend it on can be quite different," Brody says."They can see a lot of spending 'leaks'."They can then save that money and redirect it to something positive."A key strategy is to set up a direct debit into a separate savings account."Having a firm goal in mind seems to be really motivating. They've got something to look forward to."As participants' savings grow, so does their confidence and their sense of accomplishment."Sticking to a plan becomes habit-formingSetting a goal certainly worked for Laura Callow, 23, who saved up to move from the United Kingdom to Australia."I find it easier to save when I have something specific to save for," she says. "When I was living in the UK, I was saving half of what I earned in order to come to Australia with substantial funds."The habit stuck and the Melbourne resident is working towards buying a property in five years. "I put $1000 into my savings account as soon as I get paid each month and I find that I rarely touch it as it's a nice, round amount sitting there on my statement, encouraging me to leave it alone," she says.The right balance is important, too. "I save what I know I can afford, which keeps my targets realistic," Callow says. "I'd love to save more but then I'd dip back into it because the goal wouldn't feel realistic and then I'd feel less motivated."She says she used to have store and credit cards in the UK but didn't like being in debt."I see my savings as an achievement ��� and I know a lot of my friends are starting to [save], rather than drinking, eating and shopping their earnings away."Highway to buffer zoneJodie Blake, 40, started to think about the need for a savings buffer after her husband was made redundant from his job in telecommunications some years ago. That was just as well, because less than a year after he got a new job, he was made redundant again."After the first time, we started our savings plan," Blake says. "He got a job both times within a week ... but the fear of being made redundant has haunted him since."Their strategy was to set up an offset account and overpay the mortgage by two to three times. The required repayment fell to $1250 at one point, as rates were cut in 2008-09, but they kept paying $3000 a month.The couple also calculate their expenses for the year, divide that into 12-monthly amounts and set that aside from each pay. If their "bill pot" reaches more than $1000, they transfer that into the offset account, too.Rounding up the "bill pot" means they have extra for holidays, such as a trip to New York."We now have enough saved to last well over a year," Blake says.

© 2011 Sydney Morning Herald

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