Unit 2b Saving


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Unit 2b Saving

  1. 1. GENC3003Personal Financial Planning<br />Andrew Hingstonandrew.hingston@unsw.edu.au<br />Unit 2: Savings and Smart Buying<br />
  2. 2. 2<br />Discussion<br />What are some ways to cut back in expenses while at university in order to save more?<br />
  3. 3. 3<br />Saving versus deferred spending<br />“I’m saving to go on a holiday”<br />This is just a “delay” in spending money!<br />Real saving = never plan to spend the money<br />Let’s call this real savings your “investment capital”<br />The goal is to never spend your investment capital<br />Investment capital generates returns<br />Invest in property = generates rental income<br />Invest in shares = generates dividend income<br />Spend the returns … not the investment capital!<br />
  4. 4. 4<br />Why is saving important?<br />Regular saving = behaviour = become wealthy<br />Overspending = behaviour = poverty or financial stress<br />Income comes from two sources<br />You working and earning a salary<br />Your investments working and earning returns<br />… so increased savings = increased income<br />Savings required to buy a house<br />Savings required to start investment portfolio<br />Savings buffer of $10,000 = peace of mind!<br />Savings cover large unexpected expenses<br />
  5. 5. 5<br />Where do savings come from?<br />Savings =<br />Total income (salary and investment income)<br />Less tax<br />Less rent or interest on mortgage payments<br />Less living expenses<br />Increase savings by:<br />Increase salary<br />Increase investment income<br />Reduce tax<br />Appropriate housing strategies<br />Reducing living expenses<br />
  6. 6. 6<br />How to save more?<br />Stop spending 110% of income!<br />Reduce expenses by 10% or more<br />Relearn what is a “need” versus a “want”<br />Learn “contentment”<br />Learn the “behaviour” of always savings<br />Then … <br />work at increasing your salary<br />increase your investment portfolio<br />develop some good long-term strategies<br />
  7. 7. 7<br />Is this real long-term saving?<br />Money left in a transaction account – NO<br />Probably not if it is going to be spent next month!<br />Money in high-interest savings account – YES<br />Mortgage payments – NO<br />Most of mortgage payment is actually interest<br />Only payment less interest is saving (10% at start of loan)<br />Superannuation put in by employer – YES<br />Saving for holiday – NO (deferred spending)<br />Saving for car – NO (car goes down in value)<br />Saving for anything that goes down in value – NOT saving!<br />
  8. 8. 8<br />Setting goals<br />Easier to save if you have some goals<br />Visualising goal makes it easier to forgo spending now<br />… in exchange for future future happiness<br />Examples of goals:<br />New car for $12,000 by 30 June 200X (really deferred spending)<br />Holiday $5,000 on 5 Jan 200X (really deferred spending)<br />Deposit on first house $30,000 by 31 Dec 201X (real saving)<br />
  9. 9. 9<br />How much to save<br />Work out how much goal will cost – Eg $12,000<br />Work out when you want it = 5 years<br />Calculate number of months = 5 x 12 = 60<br />Divide amount by number of months = $200<br />You need to save $200 per month<br />Yes, you will receive interest on these savings<br />But it will cover you for the fact that most people under-estimate the total cost!<br />To work it out exactly, use =PMT( ) function in Excel<br />
  10. 10. 10<br />Saving tips<br />Save little, save often<br />Keep spare coins in jar and deposit in bank each month<br />Direct debit $X per month into a separate account<br />Make sure you are receiving good interest<br />ING Direct Savings Maximiser pays high interest<br />Compound interest means savings grow exponentially<br />“But I’m a student”<br />Start a good saving behaviour with $50 per month.<br />Live like a student for 2 years after graduating!<br />
  11. 11. 11<br />Don’t treat shopping as a “hobby”<br />Don’t buy unless you have the money to do so<br />Pay with cash (it feels more expensive than cards)<br />Shop around and wait for the sales<br />Substitute water for coffee and BYO<br />Make your lunch to uni/work<br />Shop at Aldi rather than Coles / Woolies / 7-Eleven<br />Buy second-hand on Ebay – then sell it again!<br />Give up on smoking, gambling and binge drinking<br />
  12. 12. 12<br />Delay buying something for two weeks<br />Often after some time you realise you can do without<br />Try classical conditioning<br />Say out loud 10 times …<br />“I cannot afford this now … I need to save money instead”<br />Track your expenses to keep you accountable<br />Putting things into a spreadsheet is a hassle<br />Creates a disincentive for small purchases<br />Spreadsheet keeps you accountable each month<br />
  13. 13. 13<br />Cut up credit card if you can’t pay full balance<br />Stay away from buying “Interest free”<br />Personal loans – for people who can’t save<br />Don’t let your parents borrow against the house<br />Home loan rate is much lower than personal loan rate<br />But term on a home loan (25+ years) is much longer than a personal loan (2-5 years)<br />End up paying a lot more interest<br />Unless disciplined enough to make extra home loan payments<br />
  14. 14. 14<br />What if I’ve got credit card debt?<br />Recognise you may have a serious behavioural problem<br />UNSW COMPAS Counselling Service (Free)<br />http://www.counselling.unsw.edu.au<br />Wesley Mission Financial Counselling Helpline (Free)<br />Phone 1800 808 488<br />Most important steps:<br />Realise that you have a problem<br />Talk to your bank – banks hate zero communication!<br />Move your credit card debt into a personal loan with bank<br />Cut up your credit card and pay off personal loan<br />
  15. 15. Stop and read<br />Now read:<br />Chapter 3<br />Saving Faster<br />Chapter 4<br />Smart Buying and Credit<br />15<br />