Denied the chance to travel or go out during the recent lock-downs, many Australians found they were able to save a little (or a lot). Silver linings, right?
Aussie households amassed an extra $120 billion in deposits since the pandemic began according to recent figures. And Westpac research shows that the pandemic motivated 49 percent of 18 to 29-year-olds to adopt healthier savings habits.
If you do have a bit of spare cash saved from lock-down, you may be wondering just what you should be doing with it? It’s a great question, especially if you want to ensure you maximise your savings to build a more secure financial future.
Here are some ideas to get you started.
Pay off your debts
You’ve got a small nest egg, and the urge to do something with it. But just a minute. There’s really no point investing or looking into savings options at all if you’re still paying a chunk of change off your credit card or BNPL every month. The best thing to do is to clear your debts first, then look at what you have left over to invest.
Open a high-interest savings account
If you want your savings when you need them, but out of your way so you’re not tempted to spend it, a separate high-interest savings account is a possible solution. Look for one that offers around 3 percent return (but be aware that returns may be impacted by market fluctuations). Some accounts may offer bonus interest if you deposit a certain amount into the account each month, to help you grow your savings further. It’s best to chat to your bank about the right options for your financial situation.
If you have a certain amount of money to invest (anything over $500, for example), you might want to consider playing the share market. Share trading is risky and you need to know what you’re doing. Buying shares essentially means you’re investing into a company – which can result in earning income (known as dividends). The return from the share market fluctuates but is typically around 6.5 percent annually. (Returns are not guaranteed. There are tax implications if you sell at a profit, and shares can go down as well as up.) You need to know what you’re doing and research the types of companies you want to invest in.
Look into small-scale investing
Micro-investing – this is where you use special apps to invest a few dollars at a time into a specific investment fund (either on a daily or monthly basis). This is hot right now but again is a risky strategy and does not guarantee a return. You don’t need loads of cash to get started, and it could be a way to dip your toe into investments without too much risk. Just be aware that there are fees to pay, and it’s probably not a get-rich-quick strategy.
Pad out your retirement fund
One of the best things you can do to secure your financial future is to throw surplus cash into your super fund. You can use the opportunity to learn more about the investment market by researching and reading up on what your money is doing in super. The downside is that you won’t see the money again until you retire, but thanks to compound interest any super contribution you make has the potential to give you great returns on your money. Plus, if you make pre-tax concessional contributions, you’ll pay only 15 percent tax on these payments rather than paying your marginal tax rate. You do need to check on your maximum contribution amounts if you decide to take this path.
Lock it away for longer
If you know you won’t need to access your money for 1-5 years, you might want to consider a term deposit. This is where you put a certain amount (anything from $1000 upwards) into a special account that has a fixed, higher-interest rate attached. As a rule of thumb, the interest rate gets better the longer you lock your money away, and because the rate isn’t subject to market fluctuations, you have an idea of the return from the get-go. Beware though – there are penalty rates if you decide to get your money out early.
Pay down your mortgage
Got a home loan that just never seems to go down on your mortgage statements? The good news is, interest rates are low, and if you’re staying put where you are for the next few years, it might be worthwhile negotiating a reduction on your current interest rate, and / or looking into refinancing. You can then look at boosting your mortgage repayments with some of your lockdown savings and paying your mortgage off faster. If you have an offset account, you might consider keeping the spare cash in there, offsetting your loan.
Start a side hustle
While dipping your toe into shares or boosting your retirement fund can be high-return ways to use up your spare cash, now might be the time to actually invest in that micro business you’ve been dreaming about starting. Just make sure you do your research. Ensure there’s a market for what you’re trying to do and create a business plan – which should include information on any additional funding you might need to get your idea off the ground and make it sustainable.
This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness for the information to your own circumstances and, if necessary, seek appropriate professional advice.