Ask Janne: What savings strategies do you recommend?

Hi Janne,

I have set my New Year’s resolutions and one of them is to save $30,000 for a family holiday overseas. Please give me some suggestions as to how I can achieve this on a fairly tight budget.

Regards, Samantha
Dee Why, NSW.

Hi Samantha, thank you for your email.

I take it you do not want to give up your current lifestyle but are struggling to find enough money to save. If you are looking to save $30,000 over the next year, you need to put away $2,500 per month. So here are my tips.

Personal Insurance: this is essential. Do this first. The most essential in my opinion is income protection, because without your income, your whole lifestyle will suffer.

You need to first ensure you have enough insurance to allow your lifestyle (and/or your family’s lifestyle) to continue in the events of some sort of loss of health, whether it be disability of death.

Personal insurances include life, total and permanent disability, income protection, trauma insurance, and business expense insurance if you are self-employed.

If you need more insurance and you are trying to save, how does that help? Well, in some cases, you can transfer your insurance into your superannuation and the superannuation pays for it instead of you.

If your insurance cost is $3000 per month, and you transfer it into your superannuation, then even if you need more cover, you have your savings pretty much sorted.

I have allowed for the fact that income protection is tax deductible, so from a cash flow point of view, $3000 per month may only be costing $2500 per month if your income tax is reduced by $500 per month because of your income protection premiums.

It is important to obtain professional advice about this as there may be some loss of benefits by moving your insurance into superannuation.

Trauma insurance and business expenses insurance cannot be held inside superannuation and the conditions of the other policies may alter because of the change. There is a lot to consider.

The next thing to look at is what you are paying on any loans: mortgage, personal loans, investment loans, car leases and credit cards.

These are all leeches on your cash flow. You may be able to reduce your interest rate and your fees, transfer some of your personal loans, credit cards or car leases to your mortgage, thereby reducing the interest rate to around four per cent.

Once again, it is important to obtain professional advice from a financial planner (not a mortgage broker) before you do anything, as a financial planner will be able to help you with structuring the loans so that it is most advantageous from both a tax and cash flow point of view.

This has in the past helped clients of mine by up to $20,000 per annum.

You also need to look at your regular bills and see if you can find a supplier who will do it at a lower cost. You may then be able to save all the money without touching your lifestyle.

The best strategy is to obtain professional advice. Please see your financial planner

Regards, Janne.