It’s an inescapable truth that society needs banks, and they need us. We use credit cards, take out loans and get into debt. But it is possible to save money by outsmarting the banks and here’s how.
Australians owe a staggering $32 billion on their credit cards and this figure is rising, according to ASIC’s Money Smart.
On top of that most Australians have home loans with the average loan around $450,000.
As a financial adviser, I have seen countless clients with credit card debts totalling as much as $50,000 and paying 15 per cent in interest.
It’s a vicious cycle because the interest rate is so high that most people get stuck paying off the interest only.
But there is a way to beat the banks at their game and gain control of your debt. The key is to know the rules and exercise financial discipline.
There’s no quick fix. Beating the banks will take time. Before you beat them, you need to beat the part of you that got you into debt in the first place.
People usually kick-start their debt by using credit cards for small things. The banks take manageable bites out of their wealth in the beginning.
But as time goes by, people make larger financial decisions. They have increased money responsibilities: a mortgage, children, school fees, holidays, and car loan.
The banks bite harder, the debts snowball. People wonder, “Where did the years go and how did I get here?”
To win the game and get yourself out of debt, you need to adopt these eight money-saving strategies:
1. Begin with savings in mind. The early you begin saving the better.
2. Practice resourceful habits. Ask yourself do you really really need something before you buy it or can you go without another way.
3. Challenge your money beliefs and habits. Sometimes we are a bit careless with money, indeed sometimes we are too frugal. Think about your beliefs and habits, and how they dictate the way you spend.
4. Take calculated risks. Everyone can benefit by having a money or investment strategy. If you intend to buy something in the future, consider saving to buy it, set budgets, or have a debt repayment plan.
5. Don’t allow your emotions to blind your better judgment. The marketing of products is geared towards encouraging you to spend. Beware of this and don’t buy straight away. Sometimes waling away and having a coffee is the best money ever spent.
6. Live by Pareto’s 80/20 rule. Pareto’s 80/20 principle means you only need 20 per cent of what you earn (including 9.5% super your employer contributes) to build your wealth. So can you save 10.5 per cent of your income?
7. Patience is a virtue worth practicing. Building wealth, or paying down debt takes time. By setting yourself a plan, you can get there.
8. Set your own standards. Just because the girl next door has something doesn’t mean you need to follow suit. Know your own money limits and set plans for achieving your money goals.