If you’re struggling to save money, you’re not alone. A worrying report from ME Bank in 2018 found that 25% of households have less than $1,000 in cash savings and 17% don’t always pay their bills on time due to a lack of money. Don’t listen to the boo-boys though – there are some legitimate reasons why you might be struggling to save.
Here are 10 of the biggest reasons why saving money is so hard today.
1. It’s so easy to spend money
Spending money at merchants is easier than ever thanks to contactless payments technology and the abundance of banks offering credit and debit cards. According to the RBA’s Payment System Report for 2017/18, 8.7 billion card payments worth $591 billion were made in that financial year – an increase of 13% for debit and 8% for credit cards from the previous year.
Plus, you can easily enter your card details and buy anything you want in minutes online. The average person can easily make more than five card payments in a single day without realising it.
The solution? Withdraw a set amount of cash from an ATM and use that for your daily spending.
2. You don’t know where the money is going
You could be completely unaware of just how many direct debits (automatic payments) you’re making every month, which could include things like Netflix and gym memberships. I recently went through my bank account and discovered I was paying a monthly direct debit for a magazine that was still being sent to my old address.
All of these direct debits can easily cost hundreds of dollars a month.
The solution? Review your bank statements and cut out any unnecessary direct payments.
3. You’re encouraged to spend money
A lot of people have it drilled into them that if you have savings you’re not doing it right. FOMO (the fear of missing out) is huge at the moment, and the emergence of buy-now-pay-later schemes like Afterpay encourage the ‘treat yo-self’ attitude. Around 25% of Afterpay’s income comes from late fees, which means a lot of people using it can’t actually afford what they’re buying.
The solution? Practice discipline in your spending by really thinking about whether you need to buy cheap plane tickets to Bali again.
4. Credit card debt is rife
This is a big killer of budgets. According to the RBA, Australians are currently being charged interest on $32.2 billion worth of credit card debt. This averages out to about $2,000 per credit card holder. You can do your bit however by paying off as much of your debt as you can every month – if you can pay off your entire balance by the due date, then you won’t be charged any interest at all. Just don’t pay the minimum required amount, because this will maximise how much you owe.
The solution? Use a debit card instead of a credit card for everyday purchases.
5. Wage growth is slow
Wage growth since 2015 has been around just 2% – that’s the lowest level of wage growth since the great depression of the 1930s. People who’ve built their wealth over decades past might slam people now for spending too much, but the fact of the matter is that people just aren’t earning as much as the used to compared to how much it costs to live.
The solution? There’s not much you can do about this one except watching your budget and waiting for the market to correct itself, unless you manage to secure a raise or land a higher-paying job.
6. Everyday expenses are greater now
This one is up for debate since the costs of items vary, but given what we talked about above, wage growth is just barely keeping ahead of inflation. In October 2018, premium fuel reached a high of 170.6 cents per litre – back in 2001 you’d pay just 89 cents per litre, which means you’re now paying almost twice as much for a tank of fuel now compared to the start of the millennia.
7. Education and housing costs are huge
It’s not just food and gas that’s more expensive now. Education and housing are possibly the two biggest expenses you’ll ever have, and both of them have skyrocketed in price compared to generations past. University education, in particular, used to be free between 1974 and 1989, but now the average three-year degree in Australia costs roughly $50,000, which can take years to repay through the HECS/HELP program.
We’re sure you’ve heard of and have maybe even experienced the housing woes Australia is currently facing, so the less said about that the better. But saving up for such a large deposit certainly makes saving for other goals more challenging.
The solution? Be more realistic in your savings goals if you have ambitions of owning a home or paying off your student debts any time soon.
8. Savings account interest rates are abysmal at the moment
If you think you can save big coin by parking your money in a savings account, you might be mistaken. Interest rates on cash options – savings accounts and term deposits – are at historic lows, with rates averaging at around 2% and rarely climbing above 3%. These rates are barely enough when you factor in inflation and tax on interest, and you can even lose money in some cases.
That being said, savings accounts aren’t all bad – they’re good vehicles for practising good savings habits. Just don’t rely on them for earning large returns.
The solution? You might need to look elsewhere for long-term gains, such as investing in shares (covered below).
9. People think budgeting and saving is hard
A lot of people think this way – a study by ASIC found that 27% of people who broke financial resolutions put their woes down to a ‘lack of willpower’. Saving doesn’t have to be hard though – you can start by simply setting up an automatic transfer to a savings account every payday, which is the forced savings method of saving.
The solution? If you find tracking your expenses too difficult, seek some help and insights from a financial advisor.
10. You aren’t investing your savings
Many people make the mistake of sitting on their cash instead of investing it, with Millennials being the worst offenders. When it comes to return-on-investment, cash options like savings accounts are safe but perform worse than shares, managed funds, property and bonds over the long-term.
A diversified option like an ETF (exchange-traded fund) could be a good way to expose yourself to the higher-potential of the sharemarket without taking on too much risk.
The solution? Invest some of your savings instead of sitting on it if you’re after greater returns.
William Jolly is a Finance Journalist. In his articles, you’re likely to find complex financial topics and products broken down into everyday language. He is passionate about improving Australians’ financial literacy and providing them with resources on how to save money in their everyday lives.