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Is a bad mood bringing your savings down?

Lex Hall  |  29 Jul 2019Text size  Decrease  Increase  |  
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Maybe it’s that fashionista friend on Instagram. Maybe it’s the ease of your Afterpay account. Or perhaps you’re just bored.

These are just some of the reasons that Australians say are causing them to squander rather than save their money.

According to new research from MyState Bank, Australians can be slaves to their emotions when it comes to spending, succumbing to “retail therapy” to cheer themselves up.

In a survey of more than 1000 people conducted last month, MyState Bank found that 62 per cent of Australians say their emotional state – which it says can range from being bored to enduring a “bad day” – has a negative or very negative impact on their ability to save.

“Aussies are feeling the pinch at the moment – wage growth is stagnant; savings interest rates are at all-time lows, and the cost of living continues to rise”, said MyState Bank managing director and chief executive, Melos Sulicich.

Boredom and bad days are among the biggest savings roadblocks for Australians, along with social media influencers, peer pressure from friends, and buy now, pay later services, says MyState Bank.

More than a quarter of Australians (27 per cent) have no budget in place to track their expenses, and almost one third (32 per cent) say they save less than two years ago or have never even managed to save any money.  And, nearly one in 10 say they struggle to reach the end of the month financially.

Revealed: Australia’s biggest savings roadblocks

MyState Bank’s research found that buy now, pay later services such as Afterpay topped the list of Australia’s biggest savings roadblocks, with two thirds of Australians admitting these products have a negative or very negative influence on the ability to resist impulse purchases.

Gen Xers’ blamed BNPL services for curbing their ability to save. More than 1 in 5 admit it has a very negative impact on savings habits, followed closely by GenZers (19 per cent).

As the name suggests, BNPL companies allows users to acquire a good immediately and pay for it later. In the case of Afterpay, reimbursements are split into four automated payments, every two weeks.

Afterpay (ASX: ATG) has more than 3.5 million customers and accounts for 87 per cent of the BNPL market in Australia.

“Consumers are buying into the ‘BNPL effect’ – they don’t need to wait to buy something when they have instant access to credit. The ease at which anyone can sign up to these buy now, pay later services is concerning, and it is easy to lose track of your spending," says Sulicich.

"If you are cash-strapped, the service can help but it can compromise your long term goals."

Social media platforms such as Facebook and Instagram, and posts from online friends and influencers, are also curbing people’s saving, says Sulicich. He says 61 per cent of Australians cite this as a negative or very negative influence on their ability to save.

Other common savings obstacles in the MyState Bank research peer pressure from friends and co-workers which 57 per cent of Australians say has a negative or very negative influence on their ability to save.

“More people have access to social media platforms than ever before and as a result, are exposed to influencers, retailers, and friends showing off clothes, holidays and gadgets,” says Sulicich.

“Social media users in Australia are some of the most active in the world with recent data shows there are now 15 million active Australians on Facebook and 9 million on Instagram.

“As humans, we can’t seem to help but compare ourselves to what we see on social media and may feel like we have to spend more to appear to be keeping up with the Joneses.”

Morningstar behavioural economist Sarah Newcomb agrees. She says you are better off comparing yourself to people with less money and focusing on how good you have it.

"This strategy is all about appreciating how good you have it,” Newcomb says. “Make sure the person/group is similar to you. Humans simply don’t get as much value from comparing ourselves with people we have nothing in common with."

Boost your mood and your money: practical ways to save

The research would suggest that ignoring social media, and no longer using BNPL, services will automatically boost your savings. Easier said than done.

But there are immediate and automatic measures you can adopt to boost your savings –you’re your emotions.

Morningstar reporter Emma Rapaport recently outlined three methods that can make a difference. They include: the 50/30-20 budget rule, and the pay-yourself-first rule. She also examined the 30-minute solutions budget, suggested by Morningstar personal finance specialist Christine Benz.

The 50/30/20 budget

The 50/30/20 budget was devised by current Democrat presidential candidate and Harvard academic Elizabeth Warren in a book she co-wrote in 2005 called All Your Worth: The Ultimate Lifetime Money Plan.

According to Warren, the 50/30/20 budget is a great way to put your spending and saving on autopilot. It's easy to follow, works quietly in the background, and is useful in shifting your focus to what you can spend money on. And best of all, you don't have to account for every single dollar you spend.

This basic budgeting rule gets you to split your after-tax income into three categories:

  • 50 per cent into spending on ‘needs' – living expenses and the essentials
  • 30 per cent into spending on 'wants' – things you want but don't necessarily need
  • 20 per cent into 'savings' – working towards your financial goals

First, calculate your after-tax income, then list your “needs” and “wants”. Once you’ve done that, set up three bank accounts, and organise automatic transfers. Check your bank account to see which day your salary is deposited into your Needs account. Then set up an automatic transfer service from this account – 20 per cent into your Savings account, 30 per cent into your Wants account – on the day your salary arrives.

Pay-yourself-first

The pay-yourself-first strategy is simple. Every pay-day, the first thing you do when the money hits your transactions account is transfer a percentage into your savings account.

Whatever's left over may be spent on your fixed costs (rent, utilities, phone bill) and variable costs (groceries, eating out, entertainment).

Putting your savings goals before expenses removes the temptation to overspend, and ensures you make regular savings contributions, pay cheque after pay cheque.

30-minute money solutions budget

Step 1: Enter your current fixed and variable expenses, as well as information about your sources of income, on the Budget Worksheet. For expenses and income sources that don't fit neatly into the categories provided, use the "other" lines.

Also record any savings that you're typically able to set aside each month.

Step 2: Start the budgeting process by scrutinising your variable (or discretionary) expenses over the past month(s). Because you have the most control over this set of costs, making adjustments here is the fastest way to improve your household's financial picture.

Be forward-looking as you evaluate your variable expenses. The data you've supplied about your income and spending provides a snapshot of the money you have coming in and going out. But your budget gives you a chance to shape your spending in accordance with your goals, both personal and financial.

Evaluating your variable expenses means being realistic. Using your real past expenses as a template for your budget helps anchor you in reality.

If you anticipate expenses that are predictable but not necessarily monthly–such as holiday and birthday gifts–it's a good idea to distribute those costs throughout the year. Look back on the past year's worth of gift-giving, estimate your expenditures, and adjust downward or upward as you see fit. Then divide by 12 to arrive at your monthly budgeted amount.

Record your target expenditures for each line item in the Budget column on the Budget Worksheet.

Step 3: Next, turn your attention to your fixed expenses on the Budget Worksheet. Although household necessities are usually referred to as fixed costs, that's a bit of a misnomer. Yes, these items are necessities, but you may be able to adjust them somewhat. Among the areas where it's possible to reduce your fixed costs are:

  • Food
  • Clothing
  • Credit card interest rates (sometimes, but not always, negotiable)
  • Mortgage payments (if refinancing is an option)

Step 4: As you tweak your target expenditures, examine how the changes affect your bottom line. Your goal should be not only to balance your household budget but also increase the amount you have earmarked for saving and investing each month.

Step 5: Finally, put in place a plan to regularly check your real-life spending versus your budget. Don’t create a budget and then leave it in the drawer.

Excerpted with permission of the publisher John Wiley & Sons, Inc. from 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances. Copyright (c) MMX by Morningstar Inc.

 

is content editor for Morningstar Australia

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