Average savings rise - good news
IF you've given the mid-year sales a miss in preference for holding onto your money, you're certainly not alone.
Recent research by ING Direct found that Australians are saving in droves, tucking away an average of $313 each month. And it's not part of a get rich quick plan. The same survey found worries about the economy are the key motivator for people to save.
I'm not convinced the Australian economy is about to collapse any time soon, in fact by world standards it's doing well, but the fact that we're saving more is good news.
Victorians take the gong as the nation's top savers, adding, on average, $373 to their savings each month. At the other end of the scale, South Australian households are saving around $222 per month - still a good result.
Retailers may be lamenting the lack of cash flowing through their tills, but it certainly isn't doing our personal finances any harm. One of the key steps in building wealth is spending less than you earn to free up cash for saving and investing.
But it's not always easy to save, especially if there isn't much fat to trim from the household budget in the first place. The ING Direct survey also found that 41% of households are saving less - not more, and among these, 59% of people blame the rising cost of living.
Don't be discouraged if you can't afford to match the national average of $313 in monthly savings. It's the commitment to regular savings that makes the difference, and a strategy of 'save a little, save often' can be very successful.
Let's say you save $1 a day during your working life, how much will you have at age 65? Well, if you can average 6.5% on your savings, which is very achievable with plenty of online savings accounts, $1 a day saved from age 20 to age 65 should be worth around $93,000. Five dollars saved a day can grow to $464,000. There's no magic here, just a sensible savings strategy and compound interest.
Hang on though - you (like me!) may not be 20. So how does it work for us with a few more years under the belt? Well, when you're older, hopefully you can save more. Let's say you can save $10 a day. In 25 years time it should be worth over $222,000. Even with only five years of savings, $10 a day should grow to around $22,000.
The point I want to make is that the amount you save is important. However getting into the habit of saving even small amounts of money will still see you build a valuable nest egg of cash over time.
Do give some thought to where you invest those savings. If you want stable, secure returns, you can earn around 6.5% with some online saving accounts, or around 6.3% on a 12-month term deposit. Shares have historically outperformed cash over longer periods, and a managed share fund is an easy way to get started in the sharemarket. Many of our large financial institutions offer a range of managed funds, some require a minimum investment of just $1,000 - but do check the fees.
Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.