Episode 2. Savings

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This podcast is for education and entertainment purposes. It's not financial advice and doesn't take into account your objectives, financial situation or needs. You should consider if the information in this podcast is appropriate for you and contact a professional financial adviser. If you are seeking financial advice. Hello and welcome back to that health Professionals Bank Better Money Management podcast, where we bring you the information, tools and tips you need to boost your financial well-being.

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Get the most from your pay and work towards the life goals that matter most to you. I'm Alan Waugh from Health Professionals Bank. And joining me again today is financial wellness and certified money coach Betsy Westcott. Bettys greatest Wish is that every Australian enjoys financial well-being. She believes the more skill and knowledge we have around money, the better choices we can make to live a happy, independent life.

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Hello and welcome back, Betty. Hi, Alan. It's good to be back. Before we get started, we'd like to acknowledge the traditional custodians of country throughout Australia and their connections to land, sea and community. We pay our respect to their elders, past and present, and extend that respect to all Aboriginal and Torres Strait Islander peoples. Back in Episode one, we looked at budgeting and how we can get our budget in better shape, and I think Betsy had some great tips for that.

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But today we're going to be tackling savings and the role it plays in improving our financial wellbeing. Over to you, Betsy. Well, that's right. Savings is such an essential component of our financial wellbeing. If we want to define financial well-being, it's about having enough money to meet our day to day expenses, which we discussed in episode one. It's having enough money set aside to withstand a financial shock, and it's having enough money to put towards your long term goals and savings is essential to both of those points.

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So it doesn't just improve our financial well-being, but it actually eases our stress. It gives us greater peace of mind and it helps us to live the life that we really desire. So what's not to love about savings? Absolutely. And I'm sure, you know, our listeners could attest to and certainly from my experience, you know, you can lose sleep over your bank balance and wake up wondering, where's all my money going?

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So, Betsy, what are we going to be looking at in today's episode? We are going to be looking at why savings is such a key component of our financial well-being. We're going to talk through - how do you create savings, goals and strategies that really work for you. We've got some tips for getting yourself set up and putting a savings strategy in place.

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And I'm going to share a couple of my favourite saving tips for success. Fantastic. Because we as we as we know in episode one, we've got our budget back on track. So we've got a bit of money that we can put away. But some people still find it really hard to save or sticking to that savings plan. Yeah, and I guess the downside of not having any savings is it makes you incredibly financially vulnerable.

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It's all well and good when we've got the income coming in and there's no surprises. But I'm pretty sure you would agree with me, Allan. Life is full of surprises, and many times if we have an unexpected event, there's often a financial consequence. And if we don't have savings set aside, that puts us in a really tricky position where we might have to borrow money or go without, and we just don't want that for our listeners.

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So that's why savings is so essential and so, yeah, non-negotiable for the financial wellbeing. That's some that's a really good point. So let's get into why savings matter in the first place. What's in it for us in terms of our overall financial well-being? Yeah. I'm going to sound like a broken record, but not only is it essential for your financial wellbeing, it reduces the financial stress.

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So when you don't have savings and something unexpected happens, it's really stressful for you. And then that flows into other areas of your life. It affects your mental wellbeing, it can affect your physical wellbeing, it can affect your relationships. So having savings reduces all of that, eliminates a lot of that and helps support your overall wellbeing. And then more importantly, onto the fun stuff.

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When you have savings, you can start building towards those life experiences, those life goals that really matter to you and really enjoy life. So savings are wonderful. And what about for our hardworking nurses and health professionals? For our health professionals, savings is a really important part of building that financial resilience, especially for nurses and midwives, and especially for those that are working casual or shift hours where your income might vary from week to week.

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And then not to mention on top of that, you're often quite exhausted. It's pretty tiring work, physical work, emotional work, being a nurse and a midwife. And then on the other hand, you do have that option of picking up extra shifts which you can use to bolster your income, but you do too much of that and you're just going to burn yourself out, which will make it really difficult to go to work.

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So it's about striking the right balance. And so again, this is why it's really important to build those savings buffers in case you have a break in income and also to have a really good budget. So you create that capacity to save as well. Okay. Let's talk about numbers then. So is there a figure that people should be aiming for to save?

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What how much should people be saving? Yeah, well, I think there's that that old sort of rule of thumb where people suggest it's about 10% of your earnings, you should always be savings. Now, I don't know about you, but I've observed from my life experiences that's not always the case. Not one size fits all. I mean, when I was fresh out of uni or my first job paying for rent, my capacity to save was a little bit challenged.

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When I was at that stage of life where my partner and I were living together and we didn't have any kids and no mortgage. Our capacity to save was really, really good. Now we've got a mortgage and a toddler and our capacity to save is somewhat reduced again. So it's about finding what's right for you at your stage of life, but certainly making sure you have some capacity to save is essential for that financial wellbeing.

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And then just keep working to create more and more savings as and when you can knowing that it might fluctuate. Yeah. Look, I've got a couple of teenage kids and I'm sure they would like to see my percentage of savings go down so I can spend more on them. Let's talk about why it's important to have saving goals and how we should go about setting them, because that's not easy to do.

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Yeah, and savings goals are so essential, but because they are, what is going to motivate us and keep us on track, particularly when those nice, shiny, tempting things come up that want to throw us off track and get us to spend our savings. So, you know, often I'll be working with a client and they'll say something like, Oh, I really want to save some money this year.

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And I'm like, okay, like a dollar. Like, what are we talking here? How will you know when you've been successful and what are you saving for? Why does it matter to you? So creating a really compelling savings goal will just support you and keep you on track so much more. So something like a smart goal would be a really great place to start.

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Yeah. So it's really important to be realistic yet realistic and specific. So a smart goal. Most of you might have heard it before, but if you haven't heard it, Smart stands for something that is specific, measurable, achievable, realistic and time band. So, you know, using the example of my client familiar oh, I want to save money. Like it's just not a great goal because it doesn't say why how much by when.

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Whereas you said I would like to save $4,000 in an emergency rainy day fund by the end of 2024, for example, So that I have financial resilience should something unexpected happen. Oh, it just hits different, doesn't it? It does. It does. Look, absolutely. Look, I think it's a great advice. And then we actually have to be smart around this.

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But what else do our listeners need to think about when we're setting savings goals? Yeah. So actually dividing them into the timeframe, is this a short term goal? Is this a medium term goal or is this a long term goal? So let's look at some examples of that. A short term goal is something that you want to achieve in the next 1 to 3 years.

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Typically. So it might be something like those emergency savings or an upcoming annual holiday or maybe buying a new sofa because you've just moved house or the other one got trashed. A medium term goal could be saving your home deposit, it might be saving for kid's education. And then you've got your long term goals, which might be, you know, paying off your home or saving for retirement or, you know, that that wonderful annual family holiday, annual family holiday.

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But like, you know, some people have a goal. It's like one day I'd like to take all my kids to Disneyland, but saving for that might be a lot. So that could be an example. Yeah, I'm going to go look. That's very helpful, breaking it down that way. But they you could have all those sort of goals colliding at once.

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So that doesn't mean that we need to focus on our short term goals first at all, does it? Not necessarily. So it's a matter of identify what goals are needs and what goals a wants as well, because sometimes, you know, as you've alluded to, Allan, you can't have everything all at once. You can't be, you know, Yeah, like if you've got the income to support putting money toward all those goals, fantastic.

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But reality is sometimes we need to make priority calls. And the way that we do that is identifying what goal is a need versus a want. So those emergency savings where it's going to create financial resilience and take the stress out of life surprises that is our need. We need that versus, you know, upgrading the car or buying the new sofa or maybe the holiday they want if you can make it happen, fabulous.

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But it's more discretionary. You might be able to change the date or the timeline on those goals if you have to. Yeah. Look, we're always so busy just worrying about the now when it comes to our finances, we can actually forget about those what ifs. Yeah, yeah, absolutely. And that's where those again, those emergency savings, those things that build financial resilience are really, really important, tied in with things like insurances.

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I guess now we've got our smart savings goals, we've got them prioritised. But what's actually going to help us get there? Well, it's the strategy we need to make a plan. It's great to have a goal, but what's your plan to get there? And this is why having smart goals with time, timeframes and priorities are really helpful because that feeds into your strategy.

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And to give you a little spoiler alert, if it's a short term goal, you're always going to be saving cash for that one. But if it's a longer term goal, you might be using different strategies like if it's retirement, you might be putting money into super. If it's owning your own home, it might be paying down your mortgage.

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So understanding what your goals are will really inform what kind of strategy that you want to put in place. Okay. So it's more than just the loose change that we get. You know, after we've paid for something with cash, which not many people do, they see us as like cash. What you actually know, I mean, look, absolutely it counts like I don't know.

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I don't know if anyone else has observed this, but I always, like, notice, like the men in my life always seem to have so many coins and a coin job. But like, I don't know, I never seem to have any challenges. But okay, maybe we're all just moving on from cash. But look, that does count. But a savings strategy just means what's that plan that's going to allow us to achieve our particular savings goal and your savings strategy?

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Like I said, it should match your timeframe. So short term goals you want to keep in cash, you don't. And in like for example, a high interest savings account where it's accessible but it's earning interest and not locking it up in something like an investment or a term deposit where, you know, it's you're not going to be able to access it when you need it.

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In addition, and I think I talked it a little bit earlier, if it's a long term goal like retirement, it might be something like, you know, putting money into your super fund as an example. Yeah. Look, a lot of our listeners have holidays over Christmas, for example, Christmas, New Year period. So how do we how do we save up?

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Because that's probably the most expensive part of the year to actually go on holiday is how do we save up for that? Yeah, it's so funny. It's so often I'm working with clients and we'll be chatting in January. They're like, Yeah, Christmas really, really threw me off my budgeting plan as that girlfriend that comes around every year. You really need to plan for that.

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It's the same day. So I'm glad you mentioned those Christmas holidays and events like that. That's an example of a short term goal. So for something like that, you would want to have it in a like a fee free, ideally high interest savings account that you're putting money into each pay cycle. And that is a readily available when you need it.

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When that date goes around. Okay. On the other end of the spectrum, you know, it comes quicker than you think, but those retirement goals and making sure we've got enough in retirement and being secure in retirement, it does seem like a long way off. But as I said, it comes up quickly. So when do we start factoring that our retirement plans into our savings strategies?

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Yeah, well, I mean, happily, we live in a in a country where we have superannuation, so we're all if we're an employee in Australia, there's always part of our income going towards our retirement. But particularly if you work part time or casually or have career interruptions for for caring responsibilities or you just need to take a break, have a sabbatical, then continuing to contribute to your retirement savings is really important and would really make a huge difference to the balance that you have.

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In the end of the day, I don't know. I think contributing extra money to a super fund is going to make the difference. On whether you're cruising Parramatta River in your retirement or cruising the Med in retirement. I know which I. So it's something that you really want to prioritise all throughout life and a little bit invested early makes a huge difference over the course of one's life.

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So if we were looking to make extra contributions to super that it might involve making voluntary additional contributions to your super fund, like I said, makes a big difference to the final balance. It not only bolsters your retirement savings, but it also can have some really, really attractive tax benefits. But naturally, yeah. Talk to a professional, seek professional advice before making any decisions like that.

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Another strategy, one that is important to so many Australians is buying and paying off that first home. I don't know about you. How long did it take you to save your first home deposit? A long time. And I'll tell you, it took me eight years, so it's definitely a marathon, not a sprint, but a really worthy goal. And so you might start out by building that up in an investment or in a savings account.

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And then when you buy your home, it's about trying to pay that off as quickly as you can, because as we know, the quicker you pay it off, the more you save in interest, the less it costs you overall. Yeah. And who doesn't want to own their own home outright? And it's a really important part of wealth creation for a lot of Australians and that secure retirement that we've been talking about.

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Yeah, you don't want to still have a mortgage when you're retiring, do you? Okay. So if we recap now, we've got our smart savings goals, we've got our savings strategies and now we need to put them into action. So how do we do that? Yeah, so this is where we set up our savings plan, which is really just putting a plan in place for our savings strategies that is actually going to help us achieve our goals.

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So let's say a smart goal was to build up a rainy day fund, an emergency fund, and oh my gosh, fund, whatever you want to call it, just have one that's $8,000 in the next 12 months so that we have peace of mind should anything unexpected happen. So our strategy is going to be making regular savings, but how much do we need to put in there to ensure that we get there in 12 months’ time?

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So this is where a savings goal calculator can be really, really helpful and also understanding what kind of account is going to be right for you. So our first step would be to figure out what account is going to have low fees and high interest that we're going to put our savings in. And then the second thing would be starting to make deposits into that.

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So step to stop putting money into that account. And it can be very helpful if you have existing savings to kind of kick that off or if you don't have any existing savings. But you kind of want to give yourself a head start, you might go and sell some unwanted items on like Facebook Marketplace to kind of kick it off with a lump sum deposit.

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Okay, that sounds great, but I'm sure there's other things you can do. Yeah, well, I definitely other things you can do. The other thing I would use is a savings go calculator, which kind of works backwards and says if I want $12,000 and sorry, $8,000 in 12 months’ time, how much do I need to be putting away each month, each cycle.

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And, and that's sort of step four, which how's your math, Alan, Can you tell me how much it is if you need to put it away? Do you have a calculator? No, but that's okay. I did. I, this is when I prepared earlier. It's actually $307.70 a fortnight coming from your everyday account into your savings account. And that would mean you would have $8,000 in 12 months’ time.

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It seems really simple and maybe I'm just oversimplifying it, but when you break it down in the steps like that, it does seem really achievable. This is the best kept secret in the money industry is that personal finance is actually pretty simple. Once someone explains it to you, breaks it down, and shows you the steps. And this is why I always tell people financial wellbeing is absolutely achievable for you.

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Look, I'm sure some of our listeners have heard, as I have around these terms, like saving buckets and whatnot, and some of them may already be used to those terms and actually doing that for them. Now what are savings buckets and how can that be a good thing and how do you set those up? So savings buckets is just a terminology that people use, which is different savings accounts or investment tools for different goals kind of thing.

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So let me let me break that down with an example. So it's and also the importance I should break down as well. So basically having different buckets for different goals is important because some goals might be short term and you want to spend it soon, other goals might be longer term and just saving cash might not be the right strategy for that particular goal.

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So you might have, for example, a bucket of a savings account and that's for your short term goals or your emergency savings. Then you might have a bucket that is your retirement savings and that's money that you're putting into your super fund. You might have a longer term sort of medium term goal of going on a holiday abroad and you might use a term deposit or an investment portfolio to get you there for that.

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So there is some different ways that savings buckets can come into play. So in saying that, should our listeners be opening a separate account for each of those savings goals, they absolutely can, depending on the goals and the timeframes that they have. But it's a really helpful way to kind of separate the different goals. And then it doesn't even have to be separate accounts.

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You might have tools available where you can have all the savings in one account, but have goals trackers, which will show you how much you're on track for, say, this rainy day fund or the holiday fund or the home deposit, and for example, the health Professional banks mobile banking app helps lets you set up a savings goal and then track your progress towards it within the app.

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Look, there are a lot of saving account options out there, so what should our listeners need to look for or think about when they're looking at a savings account? Yeah, so they should definitely look at like what other fees and charges? Is there any account keeping fees or penalties if you use particular ATMs or if you're withdrawing too often?

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That's a good one to look at. You also want to look at what interest is it paying and is there any conditions on how and when you earn that interest? So some accounts might have like a really attractive interest rate, but it's only for an introductory period. Other accounts will have a really attractive interest rate which you get paid as a bonus, provided you've made a particular deposit and had a limited number of withdrawals in a particular month.

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So it's just being mindful of what are those conditions and making sure you're adhering to them so that you get the best rate for you. And it always pays to shop around because they do vary from bank to bank. So you can use things like the Money Smart website to compare different banks and savings products. And what about some other tools that can help with the savings plans into action?

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There's actually also a great savings plan, a tool on the Health Professionals Bank website, which can be really useful in helping you determine how much you need to be putting away over a particular period to reach your savings goal, which I would definitely recommend checking out now we've got our savings plan, so we've got that all done and dusted.

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We've set up those savings accounts, we've got some buckets. How do we actually start to save now? Well, this will come back to our budget. All roads lead back to the budget that they would. Yeah. So this one, the budget will tell us how much do we have left over each pay cycle to put away towards our savings.

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Now ideally that will be enough already to put money away towards your savings and be on track. But if there's not, that's another opportunity to review your budget, reprioritise your spending and look for ways to bolster your surplus income so you can save more money and get to your goals quicker. Okay. So now taking on your tips that you've given us, you've now done a bit of a budget repair.

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We put a spending plan in place and we're getting our budget surplus happening. So what are some tips that can help us stay on track? Because that's going to be one of the hardest things. Yeah. So again, I am coming back to automating it. I mentioned that a little bit earlier in our budgeting episode, but I like to put into practice what I call paying yourself first, which is just a fancy way of saying making sure that when my money, my income hits my account, it automatically transfers into my savings account.

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And yeah, it eliminates that temptation to spend it instead of save it, which we all we all feel sometimes. But if it happens automatically, it it's already done. You don't see you don't have to worry about it. The other thing I like to do is to redirect savings that I've made when I've renegotiated bills and recurring expenses, redirect those savings into my savings account because it's so easy to spend that as well.

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And then I like to look for ways to find extra money. So whether it's like I mentioned earlier, I might we've all got this as well. Look for things around the house that is just sitting there collecting dust and I'm not using and selling that on marketplace. So easy to do those days as well. Yeah, absolutely. Okay. I'm heading out to lunch with a girlfriend and she's like, Betsy, I got you.

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I'm going to shout you this time instead of just keeping that money and spending it later. Why not have the money that you were going to spend on lunch, transfer it into a savings account? That's another really handy tip. And then just making sure that you again, this will be supported by that smart girl. But remember what it is that you're working towards and keep that in your mind and keep practicing that mindfulness around your money.

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And it's and that mindful money practice will also really help. There's some great tips, Betsy and thanks so much again for joining us today. Thank you. It's a pleasure to be here, as always. And thank you for joining us, too. We hope you enjoyed today's episode of Better Money Management. Make sure you tune into episode three this best of giving us the lowdown on being credit healthy and why that actually matters.

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In the meantime, don't forget to check out our online savings plan at all, and you'll find lots of savings, tips and resources in our website too. Just type saving into the search bar and get your hands on that cash next time.