In our lifetime, there are so many things that we need to spend on. The list seems never-ending from our daily needs, vacations, weddings, and brand-new cars, to saving for the deposit for our dream house. But while we go through our list and spend our hard-earned money, we also have to think about saving for a rainy day. This brings us to the focus of today’s blog: savings in Australia.
Are Australians keen on saving money?
Data from Finder, an Australian financial comparison site, revealed that Australians handle their savings differently based on how much they earn and their age.
Most people who work full-time make about $95,581 every year. Men usually earn more, making around $100,792 yearly, while women make about $87,714. In Western Australia, people earn the most, about $106,044 each year, while in Tasmania, they earn the least, around $84,204 annually.
Average Savings by Age
Even though people earn different amounts, on average, Australians save about $705 each month. Men save more, saving 53% more than women. When it comes to average savings by age, younger folks, like Millennials, save the most each month, around $789, followed by Gen Z and Gen X. But older folks, like Baby Boomers who are mostly retired, save the least, about $515.
Location Matters Too
Where you live also plays a role when building savings in Australia. People in New South Wales save the most each month, putting away about $782, while folks in Tasmania save the least, around $529.
A Cause for Concern When Talking About Savings in Australia
But here’s the worrying part: almost half of Australians, which is 46%, only have enough savings to last for a month or less. This is more common among women, with 54% having savings for only a month or less compared to 38% of men. Even scarier, one in five women live paycheck to paycheck with less than a week’s savings, which is double the number of men in the same situation. When we look at different age groups and the average savings by age in Australia, more than half of Gen Z and almost half of Millennials could only survive for a month or less using their savings. But 48% of Baby Boomers could make their savings last for at least a year.
It’s worrying that nearly half of Australians only have savings to last for a month or even less because having such limited savings can lead to financial instability and difficulties during unexpected situations.
Why is saving money so important?
Savings act as a safety net for individuals and families. When faced with emergencies like sudden job loss, health issues, or unexpected expenses, having only a month’s worth of savings in Australia might not be enough to cover these costs. This situation can lead to increased stress, reliance on borrowing money, or even the inability to meet basic needs like housing, food, or medical expenses.
Moreover, having minimal savings can make it challenging to plan for the future. It becomes harder to achieve long-term goals like buying a home, pursuing education, or retiring comfortably without adequate savings. It also means people might not have enough to invest in their growth or deal with unexpected situations, making them more vulnerable financially.
Having a small safety cushion of savings is important for financial security and peace of mind.
How much should you be saving each month?
Determining how much Australians should save each month depends on various factors like income, expenses, and individual financial goals. While there isn’t a one-size-fits-all answer, financial experts often suggest following a rule called the 50/30/20 rule.
50/30/20 Savings Rule Explained
This rule advises allocating 50% of your income toward essential expenses like rent or mortgage, groceries, and bills. Another 30% is for optional spending on things like entertainment, dining out, or hobbies, while the remaining 20% should ideally go into savings.
If you’re looking to secure your financial future, saving around 20% of your monthly income is a good target. However, this might not always be feasible for everyone due to varying circumstances. Some might save more, while others might need to start with a smaller percentage and gradually increase it over time. The key is to create a budget that allows for consistent savings without compromising essential expenses.
How much should an emergency fund be?
Aside from saving a portion of your salary, you should also be thinking about building an emergency fund. This will serve as a financial safety net designed to cover unexpected expenses or financial hardships that arise suddenly. It acts as a reserve of easily accessible money specifically set aside for unforeseen events.
The primary purpose of an emergency fund is to provide individuals or households with a financial cushion, allowing them to handle unexpected expenses without resorting to borrowing money or accumulating debt, thereby helping to maintain financial stability during challenging times.
Determining the ideal size of an emergency fund depends on various personal factors, including individual circumstances and financial obligations. Financial experts commonly recommend setting aside savings that cover at least three to six months’ worth of essential living expenses. This amount should include costs like rent or mortgage payments, utilities, groceries, insurance, and other necessary bills.
However, how much emergency funds you should have may vary based on factors such as job stability, family size, health concerns, and other unique financial considerations. For some, a larger emergency fund covering a longer period might offer more security, while others might find a smaller fund sufficient based on their situation.
Whatever the size of the emergency fund you’re saving for, just remember that the main idea is to establish a fund that provides a comfortable financial buffer during unforeseen circumstances without causing undue strain on regular expenses or savings goals.
Savings in Australia: 3 Tips on How to Get Started
Starting to save money can be a significant step towards financial security. If you’d like to start building your savings in Australia, here are some simple steps that can help:
1. Open High-Interest Deposit Accounts
Begin by researching high-interest deposit accounts available in the market. Compare offers and pay attention to the terms and conditions associated with these accounts. Some accounts might have restrictions on withdrawals or require increasing deposits each month to maintain a high-interest rate. Shop around to find an account that suits your savings goals and financial situation.
2. Set Clear Savings Goals
Determine what you’re saving for. Whether it’s a new car, a dream holiday, or a significant event like a wedding, setting specific savings goals is essential. Decide how much money you’ll need and create a plan to achieve these goals. Utilise tools like the Help My Wealth budgeting app, which offers a live goal-tracking feature to simplify your savings journey.
3. Regular Budgeting to Build Savings in Australia
Establish a budget to track your expenses. Monitor your spending across different categories regularly. This practice enables you to identify areas where you might be overspending. By reallocating these funds towards your savings goals, you can prioritise what matters most to you financially. Consider seeking guidance from Help My Wealth experts who can assist in setting up budget categories and redirecting excess spending toward your important goals.
Are you ready to start saving?
Building a strong savings habit is essential for financial security and achieving your long-term goals. Understanding how much savings in Australia you need to build, where to allocate your funds, and utilising the right tools can pave the way toward a more secure financial future.
By taking advantage of high-interest deposit accounts, setting clear savings goals, and consistently budgeting your expenses, you can take proactive steps to strengthen your financial position. Utilising resources like the Help My Wealth budgeting app and seeking guidance from financial experts can streamline your savings journey and help you attain your financial objectives more effectively.
If you find yourself concerned about your savings or struggling to reach your financial goals, we are here to assist you. Our team at Help My Wealth is dedicated to helping individuals like you navigate the path to financial well-being. Get in touch with us today, and let us guide you toward a more secure financial future.