Start Your ‘One Dollar’ Saving Plan Today
Some advice is so obvious that you don’t need to hear it.
And there’s some other advice that’s equally obvious, yet most people simply choose to ignore it.
There are a few reasons for that.
One is that in the early days it’s boring. It’s on a par with watching paint dry or waiting for a kettle to boil (although saying that, watching the kettle in our office kitchen is more fun than you’d think. I’ve never seen a kettle seemingly get so excited and wobbly as the water hits boiling point).
The second reason is there are more exciting options. Why do something boring when you can do something exciting? Or at the very least satisfy a current want or need rather than wait to enjoy a future want or need?
The third reason is, why bother doing it for yourself when you can just wait for the government to do it for you?
But trust me, even if we’ll accept the first and second reasons as an excuse, we’ll never accept the third reason.
What am I talking about? I’ll explain all below…
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I’m talking about saving of course.
Odds are that after even just mentioning the word ‘saving’, half the people who opened this letter will immediately close it and move on to the next email (probably an email with pictures of cute cats).
But if cute cats aren’t your thing, then hopefully you’re still with me.
Before I go on, it’s worth defining exactly what savings are. I know it sounds obvious, but not everyone knows it.
In short, when you save you’re simply putting money aside for future consumption. But when most people think of savings they just think about putting money in the bank and it earning interest.
That’s boring.
So the first thing you need to do is to stop thinking of savings as money. Instead you should think of it as future consumption. Once you do that it starts to get a bit more interesting.
Don’t Bank on the Government Paying for Your Retirement
Rather than boring old cash in the bank, it becomes money you may use in the future to buy everyday items such as food, heating or fuel. But it’s also money you could use in the future to buy more exciting things — a holiday, a boat, a motorbike.
The message I want to get across is that when you save, the aim isn’t to save money that you’ll never spend. The aim is to put money aside for future consumption.
Sure, I’m not saying you should aim to spend everything you save. I can think of few better gifts than leaving a financial legacy to your kids and family.
But if you get the hang of saving right now, a better legacy for your kids and family is to show them how to save. You can explain to them that ‘saving’ isn’t a dirty word…that if they start saving now they can put it towards a car when they turn 18…and when they’re older they can use their savings as a deposit to buy or rent a home.
So by the time they’re in their late 20s and early 30s, saving money for future consumption will be second nature.
But isn’t saving hard? And what’s the point? Unless you’ve got a lot of money to save it’ll never make a difference anyway, right?
If that’s your attitude then I guarantee you’ll never save a penny for the future. That would be a shame, because I can guarantee you the government will not pay for your retirement. In fact, the government is doing everything it can to take your retirement savings away from you.
Today, Treasurer Wayne Swan released the mid-year budget forecast. In her live blog for the Age, national affairs correspondent, Katharine Murphy wrote:
‘And more money from lost super accounts. More lost super accounts will be transferred to the ATO because the government has used MYEFO to change the time scale for inactive accounts. Currently they go to the ATO at five years, now it will be 12 months.
‘The government is counting on an increase in net receipts here worth $738 million over the forward estimates. The inactive super accounts measure delivers $555 million in 2012-13 alone.’
How long will it be before the government just takes all super money?
I can’t make it any clearer. If you choose to ignore me after all the warnings I’ve given you about the government’s plans to take your money, then don’t say I didn’t warn you.
The government (Liberal or Labor) doesn’t care whether you have money saved for retirement. All it worries about is making sure it has enough money today to pay for its expensive and wasteful projects…and for the politicians and bureaucrats to keep their jobs.
Changing the rules governing ‘lost super’ is just the latest scam to rob you in order to line the pockets of the government…and it’s all at your expense.
Forget a ‘Modest’ Retirement, Aim for More
Anyway, let me get back to saving. It’s important you save, and it’s even more important that your children save too. Contrary to what many people think, saving now does make a difference.
It could be the difference between eating tinned sausages in retirement or whether you can afford to rustle up a fresh, tasty and healthy three-course meal…or even treat yourself to night out at a nice restaurant…or a counter meal at the pub or RSL.
As you may know from reading Money Morning, I’m not a big fan of the banking system. But one of the best initiatives I’ve seen from anyone is the Commonwealth Bank’s Dollarmite accounts for kids, promoted through schools.
From the age of 5 or 6, my kids started saving money. Even if they only had a couple of dollars to deposit each week, the concept of saving money excited them.
Over time they’ve managed to build the account to a healthy balance. And over the next 10 years or so it should get even healthier. Hopefully by the time they start earning money for themselves they’ll be so used to saving that they’ll think nothing of shifting spare cash into their savings account.
So, how should you start?
That’s the great thing about saving, you can start with anything…even a dollar. In fact, that’s exactly how I want you to think about saving for the future…in terms of a dollar.
It’s part of what I call the ‘One Dollar’ savings plan.
Remember, the savings I’m talking about are new voluntary savings. That is, I’m not talking about the savings you make through a superannuation account.
This savings plan is to supplement any savings you already make, whether they’re forced or voluntary savings.
But according to the Association of Superannuation Funds of Australia, in today’s dollars a single person who wants to live a modest lifestyle will need $22,024 per year. A couple leading a modest lifestyle will need $31,760. And a single or couple who want a comfortable lifestyle will need $40,391 and $55,213 respectively.
That tells you that even if you’re after a modest lifestyle, and you’re single, you’ll need over half a million dollars saved by the time you retire. That’s a lot of cash.
So the sooner you start on the ‘One Dollar’ savings plan, the better. How does it work? Like this…
How to Turn $1 into Six-Figure Fortune
The idea is to start with something manageable. I call it the ‘One Dollar’ savings plan because I believe that every working Australian can set aside at least $1 per day.
I know, a lot of people in Australia are living paycheque to paycheque…every last dollar goes on food, fuel and bills.
But I still believe that if you stop and think about possible savings, you’ll easily find at least $1 a day that you can put in a savings account.
That doesn’t sound like much does it? As I said at the top of this letter, at the beginning, saving is about as interesting as watching paint dry.
If you put aside $1 a day, by the end of the year (including interest) you’ll have about $380 in your account. As I said, it’s not exciting, but it’s a good start.
But after a while, things do start to get exciting. After five years you’ll have over $2,000; after 10 years you’ll have nearly $5,000; and after 30 years you’ll have over $25,000.
Remember, that’s just from sticking away $1 per day, and earning interest.
If you can put aside more, the savings and returns are even better.
I know this because I’ve done it myself. Until two years ago I bought two coffees a day. Back then a coffee cost $2.60. That was $5.20 per day…or $26 per working week.
But two years ago I realised I didn’t really need to drink that much coffee, so I stopped. But I didn’t sacrifice my enjoyment. Because instead of buying two coffees a day, I buy a box of 50 teabags for about $10. That lasts me for a month.
In other words, I still get the enjoyment of a hot refreshment twice a day, but rather than spending over $1,300 a year, I only spend about $120 a year. That saves me over $1,200.
That’s money I’ve set aside in a savings account.
If I keep doing that for another 28 years, I’ll have saved over $86,000…just by not buying a coffee twice a day. And just four years after that, I’ll be looking at a cool $100,000…just by not buying coffee.
I don’t know about you, but that’s a nice little boost to the retirement fund.
That’s extra money the missus and I can use to turn a modest retirement into a comfortable retirement. And if we can find other ways to cut costs now while still enjoying ourselves, that means even more cash for retirement.
Put simply, for every $1 per day you can save now for the next 30 years, that’s one extra year of a modest lifestyle in retirement.
Start Your ‘One Dollar’ Savings Plan Today
So if you can save $5 per day (not far off the current price of a cup of coffee), that’s five years of modest retirement living…or extra cash to boost your retirement from modest to something better.
Remember, these savings are on top of any other savings you make. If you like, this is a bonus…the cream, or the cherry on top.
But is this ‘One Dollar’ savings plan perfect? No. It doesn’t take into account inflation or lower interest rates. Both of these will affect the outcome.
But you’ve got to start somewhere.
And that’s why the ‘One Dollar’ savings plan is multi-layered. The example I’ve shown you today is the plain vanilla option. As I’ll explain in the coming weeks, there are ways to modify the ‘One Dollar’ savings plan to give your savings a bigger boost.
But you need to take things one step at a time. Today you should start thinking about how you can set aside at least $1 each day from your expenses to put towards your own ‘One Dollar’ savings plan.
If you can set aside more than that, great; do it. But whatever you do, start today.
Cheers,
Kris.
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