Why you need savings
If you think of all the great things we recommend you do to sort your money, none of them are really possible unless you can save some of the money you have coming in. For instance, a steady savings habit lets you build an emergency fund, invest in KiwiSaver, shed your debt, pay for insurance, eventually even buy your home.
Having pūtea penapena frees us up mentally to make better decisions. When it’s hard to make ends meet, not having a buffer is like trying to function effectively without a night’s sleep! Studies show that without savings, we’re more likely to worry about money, be more impulsive, give in to temptations, muddle our thinking and risk getting into money troubles.
Most importantly, saving powers you towards reaching your goals – many of which take money – so you can achieve what’s most important to you in life. More on that below.
Since everyone’s needs tend to grow over time, until eventually we step back from working entirely, we all need to stash cash so it can grow. Think of your money like sunflower seeds – eat a lot now if you like, but make sure to set some aside to grow flowers, so there will be many more seeds in the future.
The best way to save money: try paying yourself first
If you really want savings, the best way is to ‘pay yourself first’. But what does that even mean?
Many times we try to save after taking care of our bills, our needs, our wants and the unexpected expenses that pop up, only to find that there’s never much left over to put away.
Sure, we may have managed to pay for everything, but haven’t got much to show for it in the long run, and we can’t grow our money for the whāinga that matter most to us.
Without paying yourself first, you may find that some of the expenses you’ve set up are holding you back from saving as much as you could. There might be subscriptions you aren’t really getting a lot out of, or utilities you are paying too much for because you haven’t researched the alternatives.
So each time you’re paid, get into the habit of paying yourself first – squirrel some away before it gets spent.
Make your savings plan and work out how much to save
Now obviously you can’t just pull any random dollar amount out of a hat to pay yourself first and ignore all your other expenses! There are bills to pay after all.
You can certainly start small at first. After all, even small amounts can make a big difference over time and get you ahead.
But to work out the most you can pay yourself first, you need a plan. That’s what a pūtea essentially is: a plan for your spending and saving – for flowing your money towards where you want it to go.
As you plug your incomings and outgoings into your budget, you can tweak it so it maximises your extra money (your surplus). Keep what makes you happy, then trim to find some savings here and there.
When you do, you’ll know how much you can save from every pay. Here’s our budgeting tool to get started.
Money saving tips: make it automatic, keep it separate
Paying yourself first works best when it’s a regular habit, and there’s no better way to make sure saving happens than setting it up to be automatic. It takes all of 10 minutes to schedule an automatic payment in your online banking for each time your pay rolls in.
It’s also really important to have your savings in a separate account, possibly one that you don’t even see too regularly. Maybe even with a different bank, so that it’s out of sight, out of mind.
Generally you’ll want to choose the type of account that will earn the highest moni hua and charge the lowest fees. Some savings accounts require you to keep a certain amount of money in them, and some have set-up costs. Others might cut your interest if you withdraw money, or charge for more than one withdrawal a month.
Making it automatic and separate is why the tax system and KiwiSaver work – they are set up to be paid into ‘out of sight, out of mind’ and growing in the background. Because we never see the money, we set up our lives to manage without it.