Whether it’s a $2000 handbag, a holiday, or dare I say it, a Thermomix, money goals mean something different to all of us but mostly they can be a stretch to obtain.
Whatever that thingamajig is, here’s how you can get there by just starting with that $500.
Lisa Barber, Hillross wealth coach and author of the book A woman’s guide to wealth – what my mother needed to know says to achieve short-term money goals, forget about investing in the share market and focus on what you have to work with:
- Your income
- Reducing expenses
- And earning interest in savings accounts
Lets say you want to take a well deserved holiday in the next 12 months, it’s a good idea to park your money in a decent bonus savers account.
The rates being offered aren’t high, between 2.5%-3.4%, as published on finder.com.au but the bonus interest for regular monthly deposits can make a difference if it adds an extra 1% or 2%.
So if you need $2000, but are starting with your $500, and deposit $100 a month for the next 12 months, you’ll earn a small but at least an extra $20-$45, depending on which lender you go with.
So as that money grows through deposits and compound interest (try this calculator), you should now have about $1740 in 12 months time.
That said, we are still short about $260 or $22 a month over a year. So what are your other options?
Investing short-term in the share market is risky and not recommended because it is very volatile.
“You might contribute $100 a week but if the market bottoms out, that money may not be available when you needed,” says Barber.
Investing in the share market is better suited to those long-term money goals which are three years or more and that’s when you can get a bit more savvy with your investment choices.
So short of getting a pay rise, or asking friends and family to give you a little cash for a birthday present this year, Lisa recommends looking for those savings in your income and this involves dividing it up into three parts through the 50/30/20 rule. This means:
- 50% of your income goes to pay committed expenses, such as accomodation and essential services and items.
- 30% goes towards discretionary spending and the things you do not want to negotiation on it.
- 20% goes towards saving for that money goal.
From this point, you need to look for any savings that can be made in the committed expenses and the discretionary spending.
This will often come down to your lifestyle choices.
And remember to achieve the $2000 money goal, you need to find $22 a month in savings.
“The discretionary spending might include somehings which are non-negotiable like getting your nails done or dieting costs.
“So don’t deny yourself of those things because your saving plan may not be sustainable if you do.
“The power of the 50/30/20 rule is that you are more conscious of when you spend on discretionary things, for instance every six weeks, versus every fortnight,” said Ms Barber.